<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): JANUARY 3, 1997
THE COLONIAL BANCGROUP, INC
(Exact name of registrant as specified in its charter)
<TABLE>
<C> <C> <C>
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
</TABLE>
================================================================================
<PAGE> 2
ITEM 5. OTHER EVENTS
BancGroup completed a business combination with Jefferson Bancorp, Inc.
(JBC), on January 3, 1997. The combination was accounted for as a pooling 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 JBC and include the combined operations of BancGroup and JBC
for all periods presented. Additionally, the accompanying condensed consolidated
financial statements and management's discussion and analysis as of September
30, 1996 and 1995 and for the three and nine months ended September 30, 1996 and
1995 have been restated to give retroactive effect to the combination with JBC
and include the combined operations of BancGroup and JBC for all periods
presented.
On January 15, 1997, BancGroup's Board of Directors declared a two-for-one
stock split effected in the form of a 100 percent stock dividend distributed
February 11, 1997. Accordingly, the accompanying financial statements,
management's discussion and analysis and selected financial data have been
restated to give retroactive effect to the stock split.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S> <C>
11 -- Computation of Earnings Per Share
23 -- Consent of Coopers & Lybrand L.L.P.
27 -- Financial Data Schedule (for SEC use only)
</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: February 13, 1997
<PAGE> 4
COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
INDEX TO RESTATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
NUMBER*
-------
<S> <C>
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...
Interim Financial Statements (September 30, 1996):
Condensed Consolidated Financial Statements...............
Notes to Condensed Consolidated Financial Statements......
Management's Discussion and Analysis of Financial
Condition and Results of Operations....................
Computation of Earnings Per Share.........................
Supplemental Interim Financial Statements (September 30,
1996) (Restatement):
Condensed Consolidated Financial Statements...............
Notes to Condensed Consolidated Financial Statements......
Management's Discussion and Analysis of Financial
Condition and Results of Operations....................
Computation of Earnings Per Share.........................
</TABLE>
<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 $ 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** $ 1.32 $ 1.00 $ 0.82 $ 0.72 $ 0.57
Fully-diluted** $ 1.28 $ 0.99 $ 0.80 $ 0.72 $ 0.57
Net income:
Primary** $ 1.32 $ 1.00 $ 0.95 $ 0.72 $ 0.62
Fully-diluted** $ 1.28 $ 0.99 $ 0.91 $ 0.72 $ 0.62
Average shares outstanding:
Primary** 31,594 29,796 25,226 21,992 20,438
Fully-diluted** 33,334 31,330 28,286 24,614 23,122
Cash dividends per common share:
Common** $ .3375
Class A** $ .1125 $ 0.40 $ 0.355 $ 0.335 $ 0.315
Class B** $ .0625 $ 0.20 $ 0.155 $ 0.135 $ 0.115
=================================================================================================================================
</TABLE>
1
<PAGE> 6
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** $ 9.33 $ 7.81 $ 7.20 $ 5.52 $ 5.54
Tangible book value per share at year-end** $ 8.41 $ 7.17 $ 6.61 $ 5.23 $ 5.20
============================================
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>
**Restated to reflect the impact of a two-for-one stock split in the form of a
100% stock dividend paid February 11, 1997.
2
<PAGE> 7
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* $ 0.28 $ 0.37 $ 0.37 $ 0.30 $ 0.25 $ 0.26 $ 0.24 $ 0.25
Fully-diluted* 0.27 0.36 0.36 0.29 0.24 0.26 0.24 0.25
==============================
</TABLE>
* Restated to reflect the impact of a two-for-one stock split in the form of
a 100% stock dividend paid February 11, 1997.
3
<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. 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 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
4
<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 1.38% 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.
- - STOCK SPLIT: On January 15, 1997, BancGroup's Board of Directors declared a
two-for-one stock split which was effected in the form of a 100 percent stock
dividend distributed on February 11, 1997. The stated par value of each
share was not changed from $2.50. Accordingly, all prior period information
has been restated to reflect the reclassification from additional paid in
capital to common stock. Additionally, all share and per share amounts in
earnings per share calculatons have been restated to retroactively reflect
the stock split.
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 4,545,454 $ 71,000 $ 1,675 $ 0
Brundidge Banking Company 03/31/95 532,868 56,609 31,577 46,044
Mt. Vernon Financial Corp. 10/20/95 1,043,440 217,967 192,167 156,356
Farmers & Merchants Bank 11/03/95 513,686 56,050 25,342 45,448
Commercial Bancorp of Georgia, Inc. 07/03/96 2,306,460 232,555 145,429 207,641
Southern Banking Corporation 07/03/96 2,858,494 232,461 160,864 205,602
=================================================================================================================
</TABLE>
The combination with the Mortgage Company in 1995 was accounted for using a
method of accounting similar to a pooling of interests. 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.
5
<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.
6
<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 $ 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.
7
<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 20.4% 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.
8
<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) $2,708,633 $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.
9
<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 $ 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, $22.2 million and $21.0 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
10
<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 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.
11
<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 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.
12
<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 $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.
13
<PAGE> 18
- - 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.
14
<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 $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.
15
<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 $ 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>
16
<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 $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
17
<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 $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
18
<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 $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.
19
<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% $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 deposit less than $100,000 1,094,863 687,007 34.2 27.4
Certificates of deposit 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 deposit. 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
20
<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 $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 deposit 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.
21
<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 $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 a 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.
22
<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 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
23
<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 $ 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 806,598 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.)
24
<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 statements 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 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.
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 11, 1997,
25
<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 $ 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:
31,039,376 shares issued and outstanding in 1995.** 77,598
Class A Common Stock, $2.50 par value; 40,000,000 shares authorized,
outstanding: 27,420,590 shares in 1994.* ** 68,551
Class B Common Stock, $2.50 par value; 4,000,000 shares authorized,
outstanding 1,270,176 shares in 1994.* ** 3,175
Additional paid in capital** 120,635 96,099
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.)
** Restated to reflect the impact of a two-for-one stock split in the form of a
100% stock dividend paid February 11, 1997.
See notes to consolidated financial statements.
26
<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 $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* $ 1.32 $ 1.00 $ 0.82
Extraordinary item, net of income taxes* -- -- (0.02)
Cumulative effect of a change in accounting for income taxes* -- -- 0.15
Net Income* $ 1.32 $ 1.00 $ 0.95
Fully-diluted:
Income before extraordinary items and the cumulative effect
of a change in accounting for income taxes* $ 1.28 $ 0.99 $ 0.80
Extraordinary item, net of income taxes* -- -- (0.02)
Cumulative effect of a change in accounting for income taxes* -- -- .13
Net income* $ 1.28 $ 0.99 $ 0.91
AVERAGE NUMBER OF SHARES OUTSTANDING:
Primary* 31,594 29,796 25,226
Fully-diluted* 33,354 31,330 28,286
===========================================================================================================================
</TABLE>
* Restated to reflect the impact of a two-for-one stock split in the form of a
100% stock dividend paid February 11, 1997.
See notes to consolidated financial statements.
27
<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
Two-For-One Stock split
(Note 1 and 10) 8,275,336 20,689 637,528 1,594 (22,283)
Adjustments for poolings-of-
interests combinations
(Notes 1 and 2) 2,482,868 6,207 5,465 10
- -----------------------------------------------------------------------------------------------------------------------------------
Restated Beginning Balance 19,033,540 47,584 1,275,056 3,188 43,188 18,128
- -----------------------------------------------------------------------------------------------------------------------------------
Shares issued under:
Directors Stock Plan 26,232 66 131
Stock Option Plans 42,700 107 49
Dividend Reinvestment 27,900 70 224
Issuance of shares for
acquisitions 7,154,294 17,886 132 48,350 290
Net income 23,973
Cash dividends: (Class A,
$0.355 per share; Class B,
$0.155 per share) (4,847)
Cash dividends by pooled bank
prior to merger --
Conversion of 7 1/2% convertible
subordinated debentures 214 2
Conversion of Class B Common
Stock to Class A Common Stock 1,398 3 (1,398) (3)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1993 26,286,278 65,716 1,273,790 3,184 91,944 37,544
- -----------------------------------------------------------------------------------------------------------------------------------
Shares issued under:
Directors Stock Plan 28,534 71 213
Stock Option Plans 134,156 335 571
Dividend Reinvestment 46,026 115 374
Stock Bonus & Retention Plan 1,300 3 9
Employee Stock Purchase Plan 4,372 11 37
Issuance of shares for previous
year acquisitions 14,940 37 70
Issuance of common stock by a
pooled bank 901,370 2,254 2,881
Net income 29,741
Cash dividends: (Class A,
$0.40 per share; Class B,
$0.20 per share) (7,432)
Cash dividends by pooled bank
prior to merger --
Conversion of Class B Common
Stock to Class A Common Stock 3,614 9 (3,614) (9)
Unrealized loss on securities
available for sale, net of taxes
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 27,420,590 68,551 1,270,176 3,175 0 0 96,099 59,853
- -----------------------------------------------------------------------------------------------------------------------------------
Shares issued under:
Directors Stock Plan 1,716 4 32,332 $ 81 241
Stock Option Plan 13,182 33 65,856 165 180
Dividend Reinvestment 53,516 134 448
Stock Bonus & Retention Plan 50,000 125 697 $(822)
Employee Stock Purchase Plan 536 1 7,534 19 89
Issuance of common stock by a
pooled bank 9,406 24 12
Conversion of Class A Common Stock
and Class B Common Stock to
Common Stock (27,445,430) (68,613)(1,270,176) (3,175) 28,715,606 71,788
Issuance of shares for acquisitions 2,089,994 5,225 22,592
Issuance of common stock by a 41,553
pooled bank prior to combination
Net Income
Cash Dividends (Class A
$0.1125; Class B, $0.0625;
Common, $0.3375 per share) (10,520)
Cash dividends by pooled bank
prior to merger --
Conversion of 7 1/2% convertible
subordinated debentures 23,418 59 269
Conversion of 12 1/3% convertible
subordinated debentures 1,120 3 8
Change in Unrealized loss on securities
available for sale, net of taxes
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December, 31, 1995 0 $ 0 0 $ 0 31,039,376 $77,598 $120,635 $90,886 $(822)
===================================================================================================================================
<CAPTION>
UNREALIZED
GAIN (LOSS) ON
SECURITIES TOTAL
AVAILABLE SHAREHOLDERS'
FOR SALE EQUITY
- ------------------------------------------------------------------
<S> <C> <C>
Balance, January 1, 1993 -- $100,406
Two-For-One Stock split
(Note 1 and 10) --
Adjustments for poolings-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,
$0.355 per share; Class B,
$0.155 per share) (4,847)
Cash dividends by pooled bank
prior to merger --
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 5,135
Net income 29,741
Cash dividends: (Class A,
$0.40 per share; Class B,
$0.20 per share) (7,433)
Cash dividends by a pooled bank
prior to merger --
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
Net Income 41,553
Cash Dividends (Class A,
$0.1125; Class B, $0.0625;
Common, $0.3375 per share) (10,520)
Cash dividends by a pooled bank
prior to merger --
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>
* Restated to reflect the impact of a two-for-one stock split in the form of a
100% stock dividend paid February 11, 1997.
See notes to consolidated financial statements.
28
<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 $ 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 financial statements.
29
<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
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 became the historical
consolidated financial statements of The Colonial BancGroup, Inc. and
subsidiaries after financial statements covering the date of consummation of
the business combinations were 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 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 $16,293,000 and these
loans had a corresponding valuation allowance
30
<PAGE> 35
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
31
<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. All earnings per share data
has been restated to reflect a two-for-one stock split effected in the form of a
100 percent stock dividend distributed on February 11, 1997.
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
2,306,460 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 2,858,494
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 4,545,454
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.
32
<PAGE> 37
The following tables show the effect of the above transactions on results of
operations for the periods prior to the merger and shareholders' equity at
January 1, 1993 (earliest date presented). Since these business combinations
were accounted for as poolings of interests, the combined results shown below
are the results for BancGroup as shown in the accompanying financial statements.
<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 $ 33,202 $17,570 $ 50,772
Additional Paid in Capital 44,532 (1,344) 43,188
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 31 532,868 $6,209
Mt. Vernon
Financial Corp. October 20 1,043,440 14,608
Farmers and
Merchants Bank November 3 513,686 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 1.29 1.09
Fully-diluted 1.26 1.08
Average shares outstanding:
Primary 32,996 31,886
Fully-diluted 34,736 33,420
- -----------------------------------------------------------
</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 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.
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 154,818 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 January 3, 1997, BancGroup completed a business combination with Jefferson
Bancorp, Inc. (JBC), of Miami Beach, Florida, with the issuance of 3,854,952
shares of BancGroup common stock. At the date of combination, JBC had assets
of $472 million and equity of $32 million.
On January 3, 1997, BancGroup completed the combination with Tomoka
Bancorp, Inc. ("Tomoka"). A total of 661,992 shares of BancGroup's Common
Stock were issued to the shareholders of Tomoka. At December 31, 1996, Tomoka
had assets of approximately $76.7 million, deposits of approximately $68.2
million and stockholders' equity of $6.5 million. Tomoka currently has four
offices located in Ormond Beach, New Smyrna Beach, Pierson and Port Orange,
Florida.
On January 9, 1997, BancGroup completed the combination with First
Family Financial Corporation ("First Family"). First Family's subsidiary First
Family Bank, FSB, based in Eustis, Florida will merge with BancGroup's existing
subsidiary bank in Orlando, Florida, Colonial Bank. The First Family
combination was accounted for as a purchase with the issuance of 330,400 shares
of BancGroup Common Stock and payment of $6.5 million in cash to First Family
shareholders. At December 31, 1996, First Family had assets of $167.3 million,
deposits of $156.7 million and stockholders' equity of $8.7 million. First
Family has six offices located in Lake County, Florida which is considered
part of the Orlando Metropolitan area.
On January 31, 1997, BancGroup completed the combination with D/W
Bankshares, Inc. ("Bankshares"). Bankshares is a Georgia corporation and is a
holding company for Dalton/Whitfield Bank & Trust located in Dalton, Georgia.
Bankshares will be merged into BancGroup's subsidiary, Colonial Bank,
headquartered in Lawrenceville, Georgia. A total of 1,016,548 shares of
BancGroup Common Stock were issued to the shareholders of Bankshares. At
December 31, 1996, Bankshares had assets of $138.7 million, deposits of $124.4
million and stockholders' equity of $11.0 million.
33
<PAGE> 38
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.
34
<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 $ 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.
35
<PAGE> 40
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 $9.125 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, 806,598 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 $14.00 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 687,796 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 1,070,000 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
36
<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 $ 1,245
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.
On January 29, 1997, BancGroup issued, through a special purpose trust,
$70,000,000 of trust preferred securities in a private placement offering. In
BancGroup's consolidated statement of condition, these securities will be shown
as long-term debt.
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 connecton 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 the twentieth (1/20) of one (1) vote per shaare 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 the 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.
On January 15, 1997, BancGroup's Board of Directors declared a two-for-one
stock split which was effected in the form of a 100 percent stock dividend
distributed on February 11, 1997. The stated par value of each share was not
changed from $2.50. Accordingly all prior period information has been restated
to reflect the reclassification from additional paid in capital to common
stock. Additionally, all share and per share amounts in earnings per share
calculations have been restated to retroactively reflect the stock split.
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.
37
<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 59,874 and 58,194 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 1,100,000 shares of Common Stock are
reserved for issuance under the 1992 Plan. At December 31, 1995 and 1994,
977,038 and 858,538 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 1,600,000 shares
of Common Stock are reserved for issuance under the 1992 Nonqualified Plan. At
December 31, 1995 and 1994, 1,565,500 and 1,573,000 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.
38
<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
- ---------------------------------------------------------
QUALIFIED NONQUALIFIED
PLANS PLANS
- ---------------------------------------------------------
<S> <C> <C>
Outstanding at
December 31, 1992 137,660 1,247,550
Granted (at $2.125-
$8.175 per share) 115,462 343,028
Exercised (at $3.08-
$3.19 per share) (5,000) (37,700)
- ---------------------------------------------------------
Outstanding at
December 31, 1993 248,122 1,552,878
Granted (at $5.74
per share) 127,412
Exercised (at $2.125-
$6.50 per share) (104,156) (30,000)
- ---------------------------------------------------------
Outstanding at
December 31, 1994 143,966 1,650,290
Granted (at $8.445-
$9.94 per share) 7,500 36,862
Exercised (at $3.08-
$8.74 per share) (67,038) (30,464)
- ---------------------------------------------------------
Outstanding at
December 31, 1995 84,428 1,656,688
- ---------------------------------------------------------
</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>
$3.08-$3.19 319,540 $ 986,384
$3.625-$4.31 792,122 3,039,062
$4.875-$5.74 129,390 739,941
$7.865-$9.94 500,064 4,139,804
- ----------------------------------------------------------
Total 1,741,116 $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,
34,048, 28,534, and 26,232 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 1,500,000 shares have been reserved
for issuance under this Plan. There were 51,300 shares outstanding of
which 260 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 300,000 shares authorized for
issuance under this Plan. There were 12,442 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.
On September 30, 1996, Congress passed legislation requiring thrifts and
commercial banks including BancGroup, which have acquired thrifts in the past
to pay a special assessment to recapitalize the Savings Association Insurance
Fund (SAIF). This one-time payment resulted in a pre-tax expense of $3,817,000
for BancGroup in 1996.
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.
39
<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 $ 2,961 $ 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-
40
<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 $ 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>
41
<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* $ 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.
42
<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 $ 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.
43
<PAGE> 48
SUPPLEMENTAL INFORMATION
44
<PAGE> 49
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
SUPPLEMENTAL SELECTED FINANCIAL DATA
FOR THE YEARS ENDED
DECEMBER 31, 1995, 1994, 1993, 1992 AND 1991
(IN THOUSAND, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION> 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
Interest income $ 317,933 $ 237,009 $ 187,291 $ 175,249 $ 182,850
Interest expense 160,444 98,335 73,739 77,682 104,487
- ---------------------------------------------------------------------------------------------------------
Net interest income 157,489 138,674 113,552 97,567 78,363
Provision for possible loan losses 7,500 7,836 11,185 12,700 10,083
- ---------------------------------------------------------------------------------------------------------
Net interest income after provision for
possible loan losses 149,989 130,838 102,367 84,867 68,280
Nointerest income 58,599 52,098 48,795 43,909 37,166
Nointerest expense 141,112 133,829 117,251 104,098 88,135
- ---------------------------------------------------------------------------------------------------------
Income before income taxes 67,476 49,107 33,911 24,678 17,311
Applicable income taxes 24,014 16,349 10,308 6,668 4,658
- ---------------------------------------------------------------------------------------------------------
Income before extraordinary items
and the cumulative effect of a change in
accounting for income taxes 43,462 32,758 23,603 18,010 12,653
Extraordinary items, net of income taxes -- -- (463) -- 831
Cumulative effect of a change in
accounting for income taxes -- -- 3,650 -- --
- ---------------------------------------------------------------------------------------------------------
Net income $ 43,462 $ 32,758 $ 26,790 $ 18,010 $ 13,484
=========================================================================================================
EARNINGS PER COMMON SHARE
Income before extraordinary items
and the cumulative effect of a change in
accounting for income taxes:
Primary** $ 1.23 $ .98 $ .82 $ .71 $ .52
Fully-diluted** $ 1.21 $ .97 $ .81 $ .71 $ .52
Net Income:
Primary** $ 1.23 $ .98 $ .93 $ .71 $ .56
Fully-diluted** $ 1.21 $ .97 $ .92 $ .71 $ .55
Average shares outstanding:
Primary** 35,258 33,378 28,816 25,456 24,156
Fully-diluted** 37,034 34,912 31,002 28,122 26,840
Cash dividends per common share:
Common** $ .3375 -- -- -- --
Class A** $ .1125 $ .40 $ .355 $ .335 $ .315
Class B** $ .0625 $ .20 $ .155 $ .135 $ .115
- ---------------------------------------------------------------------------------------------------------
STATEMENT OF CONDITION DATA
At year-end:
Total Assets $4,635,198 $3,583,357 $3,457,261 $2,415,930 $2,256,065
Loans, net of unearned income 3,442,159 2,554,238 2,128,408 1,501,456 1,401,173
Mortgage loans held for sale 112,203 61,556 368,515 150,835 105,219
Deposits 3,575,485 2,811,329 2,741,990 2,032,246 1,925,997
Long-term debt 29,142 69,203 57,397 22,979 27,225
Shareholders' equity 327,088 253,389 236,039 146,486 145,298
Average balances:
Total assets $4,071,450 $3,430,220 $2,753,585 $2,354,542 $2,160,908
Interest-earning assets 3,711,269 3,095,963 2,441,029 2,076,097 1,927,815
Loans, net of unearned income 2,931,666 2,312,422 1,656,255 1,460,366 1,403,980
Mortgage loans held for sale 98,785 135,046 248,502 121,820 65,373
Deposits 3,181,066 2,768,866 2,188,618 1,983,221 1,842,306
Shareholders' equity 284,632 248,133 179,989 141,645 137,971
Book value per share at year-end** $ 9.41 $ 7.90 $ 7.63 $ 6.20 $ 6.20
Tangible book value per share at year-end**$ 8.54 $ 7.24 $ 7.04 $ 5.96 $ 5.20
</TABLE>
1
45
<PAGE> 50
<TABLE>
<S> <C> <C> <C> <C> <C>
SELECTED RATIOS
Income before extraordinary items and the
cumulative effect of a change in accounting
for income taxes to:
Average assets 1.07% 0.95% 0.86% 0.78% 0.62%
Average shareholders' equity 15.27 13.20 13.11 12.71 10.15
Net income to:
Average assets 1.07 0.95 0.97 0.78 0.63
Average shareholders' equity 15.27 13.20 14.88 12.71 10.15
Efficiency ratio 64.63 69.37 71.82 73.03 76.17
Dividend payout ratio 28.39 27.99 27.73 32.83 43.68
Average equity to average total assets 6.99 7.23 6.54 6.02 6.38
Total nonperforming assets to
net loans, other real estate and
repossession 0.83 1.26 1.80 2.33 2.00
Net charge-offs to average loans 0.17 0.13 0.36 0.58 0.61
Allowance for possible loan losses
to total loans (net of unearned income) 1.28 1.57 1.63 1.55 1.36
Allowance for possible loan losses
to nonperforming loans* 256% 237% 211% 129% 124%
=====================================================================================================
</TABLE>
*Nonperforming loans consist of the aggregate loans for which interest is not
being accrued and loans negotiated to provide a reduction or deferral of
principal or interest because of a deterioration in the financial condition of
the borrower.
** Restated to reflect the impact of a two-for-one stock split in the form of a
100% stock dividend paid February 11, 1997.
2
46
<PAGE> 51
SUPPLEMENTAL SELECTED QUARTERLY FINANCIAL DATA 1995-1994
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
TOTAL
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 $88,711 $82,661 $77,526 $69,091 $65,470 $59,608 $57,533 $54,399
Interest expense 46,042 42,768 39,127 32,507 28,196 24,468 23,469 22,202
- ----------------------------------------------------------------------- -------------------------------------
Net interest income 42,669 39,893 38,399 36,584 37,274 35,140 34,064 32,197
Provision for loan losses 3,099 1,529 1,459 1,413 1,966 2,096 1,906 1,868
- ----------------------------------------------------------------------- -------------------------------------
Net interest income after
provision for loan losses 39,570 38,364 36,940 35,171 35,308 33,044 32,158 30,329
Net income $ 9,568 $12,106 $12,158 $ 9,631 $ 8,142 $ 8,219 $ 7,751 $ 8,647
- ----------------------------------------------------------------------- -------------------------------------
Per common share:
Net income:
Primary * $ 0.26 $ 0.36 $ 0.37 $ 0.24 $ 0.24 $ 0.24 $ 0.24 $ 0.26
Fully-diluted * 0.26 0.36 0.36 0.23 0.24 0.24 0.23 0.26
- ----------------------------------------------------------------------- -------------------------------------
</TABLE>
* Restated to reflect the impact of a two-for-one stock split in the form of a
100% stock dividend paid February 11, 1997.
47
<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 January 3,
1997 merger of Jefferson Bancorp, Inc. ("Jefferson") into BancGroup. (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 35 acquisitions including Jefferson the Company
has grown to a $4.6 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 Bancorp, Inc. ("Commercial") acquisition and
also moved into Florida with the acquisition of Southern Banking Corporation
("Southern") based in Orlando. In January 1997, BancGroup continued its
expansion in Florida with the acquisition of Jefferson in Miami Beach. More
importantly BancGroup's earnings per share have increased an average of 21.1%
per year since 1992 and in 1995 the Company achieved a 15.27% return on average
equity and a 1.07% 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 Birmingham, Huntsville, Montgomery and Anniston, Alabama as well as the
Atlanta, Georgia and the Orlando and Miami Beach, Florida metropolitan
centers has been a major factor in the Company's growth. Commercial real
estate and other commercial loans increased 15% during 1995 following a
20.4% 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 313% from
December 31, 1992 to $1.55 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.
48
<PAGE> 53
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. On January 3, 1997, Bancorp merged
with Jefferson, a $433 million bank in Miami Beach, Florida. These
business combinations provide BancGroup with a significant base of
operations in the Southeast's two latest growing markets.
COST CONTROL: An operational and organizational infrastructure establised
in prior years has allowed the Company to grow significantly and improve
the efficiency ratio from 76.17% in 1991 to 64.63% 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 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 1993 by $12.8 million to 1.8% 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 chargeoffs over the past 5 years have consistently
compared favorably with the Company's peer group and were only .17% of
average loans in 1995 and .13% 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 mergers and 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 1995.
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.
49
<PAGE> 54
BancGroup recently completed the following combinations with other
financial institutions. The balances reflected are as of the date of
combination.
(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 4,545,454 $71,000 $ 1,675 $ 0
Brundidge Banking Company 03/31/95 532,868 56,609 31,577 46,044
ML Vernon Financial Corp. 10/20/95 1,043,440 217,967 192,167 156,356
Farmers & Merchants Bank 11/03/95 513,686 56,050 25,342 45,448
Commercial Bancorp of Georgia, Inc. 07/03/96 2,306,460 232,555 145,429 207,641
Southern Banking Corporation 07/03/96 2,858,494 232,461 160,864 205,602
Jefferson Bancorp, Inc. 01/03/97 3,854,952 472,732 322,857 405,836
==============================================================================================
</TABLE>
The combination with the 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 and Commercial and on January 3,
1997 BancGroup completed the merger with Jefferson. These combinations were
accounted for using the pooling-of-interests method. Accordingly, all financial
statement amounts have been restated to reflect the financial condition and
results of operations as if the combinations had occurred at the beginning of
the earliest period presented. The 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.
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 45% 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.
50
<PAGE> 55
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 22% of the 29% 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.
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 $157,489 $138,674 $113,552
Provision for possible
loan losses (7,500) (7,836) (11,185)
Noninterest income 58,599 52,098 48,795
Noninterest expense (141,112) (133,829) (117,251)
- ----------------------------------------------------------------------------------------------
Pretax income 67,476 49,107 33,911
Taxes (24,014) (16,349) (10,308)
- ----------------------------------------------------------------------------------------------
Income before
Income before extraordinary items and the cumulative
effect of a change in accounting for income taxes 43,462 32,758 23,603
Extraordinary loss -- -- (463)
Cumulative effect of accounting change -- -- 3,650
- ----------------------------------------------------------------------------------------------
Net income $ 43,462 $32,758 $ 26,790
- ----------------------------------------------------------------------------------------------
</TABLE>
51
<PAGE> 56
Consistently increasing net income is a primary goal of management. Earnings
(income before extraordinary items and accounting changes) increased 33% in
1995, 39% in 1994 and 31% 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 19.9% in average earning assets. This follows an
increase of 26.8% in 1994.
- - An increase of $6.5 million (12%) and $3.3 million (7%) in noninterest
income in 1995 and 1994, respectively.
- - Maintenace of high asset quality and reserve coverage ratios. Net
charge-offs were $4.8 million or .17% of average net loans in 1995 and
$3.0 million or .13% of average net loans in 1994. In recognition of
these low net charge-offs loan loss provisions were reduced $3.3 million
in 1994 and $336,000 in 1995.
- - Loan growth, excluding acquisitions, of 25% in 1995 following an increase
of 20% in 1994.
- - An increase in loans as a percent of average earning assets to 79% in 1995
from 75% in 1994.
- - Noninterest expenses as a percent of average assets were reduced to 3.47%
in 1995 from 3.90% 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
loan, 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 4.30% in 1995 compared to 4.55% in 1994 and 4.69% in 1993. Over this
period net interest income on a fully tax equivalent basis increased to $159.7
million in 1995 from $140.8 million in 1994 and $114.5 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 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% in 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
52
<PAGE> 57
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
3.68% for 1994 to 5.07% for 1995.
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 19.9% increase in average interest-earning assets. This
follows a 26.8% increase in 1994. In addition and equally significant, net
loans increased $888 million (35%) from December 31, 1994 to December 31,
1995. Earning assets as a percentage of total average assets also
increased from 88.7% in 1993 to 90.3% in 1994 to 91.2% 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 $249 million in 1993 to $99 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 38.5% of
total loans at December 31, 1994 to 45.0% 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.
53
<PAGE> 58
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) $ 2,931,698 $ 271,072 9.25% $2,312,422 $ 192,699 8.33% $1,656,256 $ 139,224 8.41%
Mortgage loans held for sale 98,753 7,423 7.52 135,046 10,674 7.90 248,502 18,353 7.39
Investment securities and
securities available for sale:
Taxable 551,015 32,570 5.91 513,837 27,601 5.37 398,019 22,412 5.63
Nontaxable (2) 50,055 3,853 7.70 59,112 4,686 7.93 60,269 5,237 8.69
Equity securities (3) 30,595 2,323 7.59 36,196 2,032 5.61 26,307 1,423 5.41
- --------------------------------------------------------- ---------------------- ----------------------
Total investment securities 631,665 38,746 6.13% 609,145 34,319 5.63% 484,595 29,072 6.00%
Federal funds sold and
securities purchased under
resale agreements 45,147 2,621 5.81 32,613 1,149 3.52 48,546 1,422 2.93
Interest-earning deposits 4,006 293 7.31 6,737 297 4.41 3,130 104 3.32
- --------------------------------------------------------- ---------------------- ----------------------
Total interest-earning assets 3,711,269 $ 320,155 8.63% 3,095,963 $ 239,138 7.72% 2,441,029 $ 188,175 7.71%
- --------------------------------------------------------- ---------------------- ----------------------
Allowance for loan losses (39,539) (36,201) (26,355)
Cash and due from banks 146,450 132,064 109,700
Premises and equipment. net 59,522 56,602 43,999
Other assets 193,748 181,792 185,212
- --------------------------------------------- ---------- ----------
Total Assets $ 4,071,450 $3,430,220 $2,753,585
- --------------------------------------------- ---------- ----------
LIABILITIES AND
SHAREHOLDERS' EQUITY:
Interest-bearing liabilities:
Interest-bearing demand
deposits $ 654,218 $ 18,924 2.89% $ 713,507 $ 18,327 2.57% $ 611,199 $ 15,530 2.54%
Savings deposits 306,860 10,924 3.56 329,760 9,907 3.00 272,423 7,932 2.91
Time deposits 1,653,436 96,604 5.84 1,287,064 55,505 4.31 937,276 40,513 4.32
Short-term borrowings 503,578 30,226 6.00 258,004 11,104 4.30 217,961 6,941 3.18
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 3,166,775 $ 160,414 5.07% 2,672,193 $ 98,304 3.68 2,095,198 $ 73,710 3.52%
- --------------------------------------------------------- ---------------------- ----------------------
Non interest-bearing demand
deposits 566,552 438,535 367,720
Other liabilities 53,491 71,359 110,678
- --------------------------------------------- ---------- ----------
Total Liabilities 3,786,818 3,182,087 2,573,596
Shareholders' equity 284,632 248,133 179,989
- --------------------------------------------- ---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 4,071,450 $3,430,220 $2,753,585
==================================================================================================================================
RATE DIFFERENTIAL 3.56% 4.04% 4.19%
NET INTEREST INCOME AND
NET YIELD ON INTEREST
EARNING ASSETS (4) $ 159,741 4.30% $ 140,834 4.55% $ 114,465 4.69%
==================================================================================================================================
</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.
54
<PAGE> 59
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 $4,969 $2,081 $2,888 $ 5,189 $6,165 $ (972)
Nontaxable securities (2) (833) (700) (133) (551) (99) (452)
Dividends on preferred
stocks (3) 291 (228) 519 609 553 56
- -----------------------------------------------------------------------------------------------------------------------
Total securities 4,427 1,153 3,274 5,247 6,619 (1,372)
Total loans (net of unearned
income) 78,373 55,618 22,755 53,475 54,669 (1,194)
Mortgage loans held for sale (3,251) (2,750) (501) (7,679) (9,074) 1,395
Federal funds sold and
securities purchased
under resale agreements 1,472 548 924 (273) (714) 441
Interest-earning deposits (4) 6 (10) 193 150 43
- -----------------------------------------------------------------------------------------------------------------------
Total 81,017 54,575 26,442 50,963 51,650 (687)
- -----------------------------------------------------------------------------------------------------------------------
Interest expense:
Interest-bearing demand
deposits 597 (1,152) 1,749 2,797 2,626 171
Savings deposits 1,017 (611) 1,628 1,975 1,716 259
Time deposits 41,099 18,295 22,804 14,992 15,084 (92)
Short-term borrowings 19,122 13,517 5,605 4,163 1,429 2,734
Long-term debt 275 (262) 537 667 1,016 (349)
- -----------------------------------------------------------------------------------------------------------------------
Total 62,110 29,787 32,323 24,594 21,871 2,723
- -----------------------------------------------------------------------------------------------------------------------
Net interest income $18,907 $24,788 $(5,881) $26,369 $29,779 $(3,410)
- -----------------------------------------------------------------------------------------------------------------------
</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 45% of its noninterest income from mortgage
banking related activities with the remaining 55% 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, $22.2 million and $21.0 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.
55
<PAGE> 60
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 15% increase in
service charge income in 1995 and a 14% 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 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
$2,917,000 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 18,048 15,648 13,697 2,400 15 1,951 14
Other charges, fees and
commissions 3,786 3,414 2,719 372 11 695 26
Other income 12,461 9,095 9,107 3,366 37 (12) 0
- ------------------------- ------- ------- ------- ------ ---- ------ --
Subtotal 57,724 50,373 46,602 7,351 15 3,771 8
Other noninterest income items:
Securities gains, net 633 1,649 2,568 (1,016) (919)
Gain (loss) on disposal of
other real estate and
repossessions 242 76 (375) 166 451
- ------------------------- ------- ------- ------- ------ ---- ------
Total noninterest income $58,599 $52,098 $48,795 $6,501 12% $3,303 7%
- ------------------------- ------- ------- ------- ------ ---- ------ --
==========================================================================================================================
</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 20% 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
56
<PAGE> 61
4.26% in 1993 to 3.90% in 1994 to 3.47% 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 $2.7 million or 4% in 1995 and increased $6
million or 11% 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.
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). On September 30, 1996, Congress
passed legislation requiring thrifts and commercial banks, including BancGroup,
which have acquired thrifts in the past to pay a special assessment to
recapitalize the SAIF. This one-time payment resulted in a pre-tax expense of
$3,817,000 for BancGroup in the third quarter of 1996. The recapitalization
allows a reduction in the current .23% average annual SAIF premium rate.
57
<PAGE> 62
<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 $ 57,200 $ 59,867 $ 53,861 $(2,667) (4)% $ 6,006 11%
benefits
Net occupancy expenses 14,057 13,165 10,939 892 7 2,226 20
Furniture and equipment
expense 9,247 8,074 6,802 1,173 15 1,272 19
Amortization of mortgage
servicing rights 9,095 6,078 4,840 3,017 50 1,238 26
Amortization of intangible
assets 1,545 1,410 977 135 10 433 44
FDIC assessment 4,204 6,072 4,726 (1,868) (31) 1,346 28
Stationery, printing and
supplies 3,261 3,378 3,145 (117) (3) 233 7
Postage 2,170 1,860 1,684 310 17 176 10
Telephone 3,585 3,197 2,808 388 12 389 14
Insurance 1,633 2,030 1,799 (397) (20) 231 13
Legal fees 2,604 3,038 2,167 (434) (14) 871 40
Advertising and public
relations 4,078 2,964 1,768 1,114 38 1,196 68
Other 28,433 22,696 21,735 5,737 25 961 4
- --------------------------------------------------------------------------- -------
Total noninterest expense $141,112 $133,829 $117,251 $7,283 5% $16,578 14%
- --------------------------------------------------------------------------- -------
Noninterest expense to
Average Assets 3.47% 3.90% 4.26%
==========================================================================================================
</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 $24,014,000 --
1994 16,349,000 --
1993 10,308,000 $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 and 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.
58
<PAGE> 63
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 $1,051,841 29.4
Securities available for sale
and investment securities 28,139 4.8
Mortgage loans held for sale 50,647 82.3
Loans, net of unearned income 887,921 34.8
Deposits 764,156 27.2
- ------------------------------------------------------
</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
for 1993 through 1995 have been:
- - An increase in residential mortgage loans from 25.0% of total loans at
December 31, 1992 to 45.0% at December 31, 1995. This increase has
resulted from the acquisition of thrifts as well as from loans CMC
produced for the Company's profolio. BancGroup has continued to place
emphasis on these as a major product line which has a relatively low
loss ratio.
- - Internal loan growth of 25% in 1995 excluding acquisitions.
- - A 29% increase in 1995 in average noninterest bearing demand deposits
with 22% 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%, 1.26% and 1.80% of related
assets at December 31, 1995, 1994 and 1993. Net charge-offs were .17%,
.13% and .36% of average loans over the same periods. The allowance
for possible loan losses was 1.28% of total loans at December 31, 1995,
providing 256% coverage of nonperforming loans (nonaccrual and
renegotiated).
Increase in tier one leverage ratios from 5.79% at December 31, 1993
to 7.36% at December 31, 1995.
- - An increase in the loan to deposit ratio from 90.9% at December 31,
1994 to 96.3% 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 $51 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.
59
<PAGE> 64
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% 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 $567 million or 58% 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.
- - The most significant industry concentration is in loans collateralized by
commercial real estate with loan balances of $769,241,000, $675,204,000,
$561,834,000, $467,020,000, and $385,443,000, 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 and South 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 $112,203,000, $61,556,000, $368,515,000, $150,835,000 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, 20% in 1994, 12% in 1993
and 11% in 1992 excluding acquisitions.
60
<PAGE> 65
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 $ 485,255 $ 405,084 $ 335,779 $ 305,897 $ 339,859
Real estate--commercial 821,661 675,204 561,834 467,020 385,443
Real estate--construction 362,558 238,233 175,706 131,898 92,619
Real estate--residential 1,504,188 984,328 826,956 375,572 342,104
Installment and consumer 224,812 193,671 172,033 164,074 183,663
Other 48,142 60,929 51,708 58,224 60,911
- ------------------------------------------------------------------------------------------------------------------------------------
Total loans $3,446,616 $2,557,449 $2,124,016 $1,502,685 $1,404,599
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
Percent of loans in each category to
total loans:
Commercial, financial and agricultural 14.1% 15.8% 15.8% 20.4% 24.2%
Real estate--commercial 23.8 26.4 26.5 31.1 27.4
Real estate--construction 10.5 9.3 8.3 8.8 6.6
Real estate--residential 43.6 38.5 38.9 25.0 24.4
Installment and consumer 6.5 7.6 8.1 10.9 13.1
Other 1.5 2.4 2.4 3.8 4.3
- ------------------------------------------------------------------------------------------------------------------------------------
100.0% 100.0% 100.0% 100.0% 100.0%
====================================================================================================================================
</TABLE>
As discussed in a subsequest 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 57% 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, particularily 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.
<TABLE>
<CAPTION>
(In thousands) December 31, 1995
- ----------------------------------------------------------------------------------------------------------------------------------
RateSensitivity
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 $ 265,970 $ 150,601 $ 53,530 $ 204,358 $ 265,743 $ 129,973 $ 74,158
Real estate-commercial 229,137 440,162 128,298 433,974 363,623 358,987 209,473
Real estate-construction 213,370 65,041 41,099 88,378 231,132 33,210 72,930
Real estate-residential 177,143 441,445 947,349 522,903 1,043,034 414,243 974,669
Installment and consumer 115,281 104,112 12,286 186,568 45,112 99,058 17,222
Other 6,402 10,023 43,649 34,367 25,707 28,602 25,070
- ----------------------------------------------------------------------------------------------------------------------------------
Total loans $1,007,303 $1,211,385 $1,226,211 $1,470,548 $1,974,351 $1,064,074 $1,373,522
==================================================================================================================================
</TABLE>
61
<PAGE> 66
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
.17% from .13% in 1994. This increase has been impacted by the increase in
average loans but also by an increase of approximately $1.9 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 .61 % in 1991 to a low of .13% in 1994.
For 1991 and 1992, a period during which the national economy went through a
recession, BancGroup's annual charge-off ratio averaged .60% 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 124% at December 31, 1991
to 256% 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.
62
<PAGE> 67
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 $ 40,137 $ 34,770 $ 23,338 $ 19,072 $ 17,322
Charge-offs:
Commercial, financial, and agricultural 3,100 2,765 4,112 5,001 4,818
Real estate-commercial 1,165 1,605 938 1,635 1,385
Real estate-construction 44 2 957 7 4
Real estate-residential 372 372 569 730 766
Installment and consumer 2,622 1,775 2,004 3,190 3,886
Other 163 168 7 83 74
- ------------------------------------------------------------------------------------------------------------------------
Total charge-offs 7,466 6,687 8,587 10,646 10,933
- ------------------------------------------------------------------------------------------------------------------------
Recoveries:
Commercial, financial, and agricultural 1,051 1,898 804 539 621
Real estate-commercial* 48 218 96 64 37
Real estate-construction 11 12 25 -- --
Real estate-residential 161 77 102 171 157
Installment and consumer 1,307 1,469 1,524 1,423 1,515
Other 45 43 7 15 13
- ------------------------------------------------------------------------------------------------------------------------
Total recoveries 2,623 3,717 2,558 2,212 2,343
- ------------------------------------------------------------------------------------------------------------------------
Net charge-offs 4,843 2,970 6,029 8,434 8,590
Addition to allowance charged to
operating expense 7,500 7,836 11,185 12,700 10,014
Allowance added from bank acquisitions 1,129 501 6,276 -- 326
- ------------------------------------------------------------------------------------------------------------------------
Allowance for possible loan losses-
December 31 $ 43,923 $ 40,137 $ 34,770 $ 23,338 $ 19,072
========================================================================================================================
Loans (net of unearned income)
December 31 $3,442,159 $2,554,238 $2,128,408 $1,501,456 $1,401,172
Ratio of ending allowance to ending loans
(net of unearned income) 1.28% 1.57% 1.63% 1.55% 1.36%
Average loans (net of unearned income) $2,931,698 $2,312,422 $1,656,256 $1,460,366 $1,403,980
Ratio of net charge-offs to average loans
(net of unearned income) 0.17% 0.13% 0.36% 0.58% 0.61%
Allowance for loan losses as a percent
of nonperforming loans
(nonaccrual and renegotiated 256% 237% 211% 129% 124%
========================================================================================================================
</TABLE>
NONPERFORMING ASSETS
BancGroup classifies problem loans into four categories: nonaccrual,
past due, renegotiated and other potential problems. When management
determines a loan no longer meets the criteria for performing loans and
collection of interest appears doubtful, the loan is placed on nonaccrual
status. All loans that are 90 days past due are considered nonaccrual unless
they are adequately collateralized, they are in the process of collection, and
there is reasonable assurance of full collection of principal and interest.
BancGroup's policy is also to charge off installment loans 120 days past due
unless they are in the process of foreclosure and are adequately
collateralized. Management closely monitors all loans which are contractually
90 days past due, renegotiated or nonaccrual. These loans are summarized as
follows:
63
<PAGE> 68
<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 $15,360 $13,528 $15,080 $16,744 $14,339
Aggregate loans renegotiated 1,800 3,386 1,425 1,346 1,020
- ------------------------------------------------------------------------------------------------------------------------------------
Total nonperforming loans* 17,160 16,914 16,505 18,090 15,359
Other real estate 11,226 15,473 22,066 17,126 12,731
Repossessions 162 81 88 103 150
- ------------------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets* $28,548 $32,468 $38,659 $35,319 $28,240
====================================================================================================================================
Aggregate loans contractually
past due 90 days for which
interest is being accrued $ 2,233 $ 3,609 $ 2,229 $ 1,474 $ 4,362
Total nonperforming loans as a
percent of net loans 0.50% 0.66% 0.78% 1.20% 1.10%
Total nonperforming assets as a
percent of net loans, other real estate
and repossessions 0.83% 1.26% 1.80% 2.33% 2.00%
Total nonaccrual, renegotiated and
past due loans as a percent of total loans 0.56% 0.80% 0.88% 1.30% 1.41%
Allowance for loan loss as a percent of
nonperforming loans (nonaccrual
and renegotiated) 256% 237% 211% 129% 124%
====================================================================================================================================
</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 1.20% at December 31, 1993 compared to 1.80% 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 1.26%.
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 $15.4 million compared to
$13.5 million at December 31, 1994. This increase is primarily in commercial
real estate loans from prior years' acquisitions and the Georgia acquisition
completed in 1995.
64
<PAGE> 69
Management, through its loan officers, internal loan review staff and
external examinations by regulatory agencies, has identified approximately $119
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 amount 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
$1,062,000, $1,196,000, $958,000, $1,121,000 and $1,344,000 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.
Carrying
(In thousands) Balance Reserve Value
- --------------------------------------------------------------------------------
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 5,152 832 4,320
Installment and Consumer 782 232 550
Other 26 13 13
- --------------------------------------------------------------------------------
Total impaired loans $ 17,064 $ 6,257 $10,807
================================================================================
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.
65
<PAGE> 70
<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 $ 9,142 $ 8,742 $ 8,235 $ 6,087 $ 5,113
Real estate--commercial 13,812 12,458 11,844 6,688 5,552
Real estate--construction 7,333 3,636 1,830 2,077 1,177
Real estate--residential 7,506 9,047 7,349 4,042 3,697
Installment and consumer 3,326 3,044 2,954 2,567 2,328
Other 2,804 3,210 2,558 1,877 1,205
- -----------------------------------------------------------------------------------------------------
Total $43,923 $40,137 $34,770 $23,338 $19,072
- -----------------------------------------------------------------------------------------------------
</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 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.
66
<PAGE> 71
- - 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 $226 million at
December 31, 1994 to $333 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 $217,801 $289,341 $243,383
Obligations of state
and political
subdivisions 47,111 44,613 36,823
Other 19,622 30,420 35,408
- --------------------------------------------------------------------------------
Total $284,534 $364,374 $315,614
- --------------------------------------------------------------------------------
Securities available for sale:
U.S. Treasury securities
and obligations
of U.S. government
agencies $283,494 $195,124 $222,732
Obligations of state
and political
subdivisions 10,188 7,518 27,406
Other 39,813 22,874 14,477
- --------------------------------------------------------------------------------
Total $333,495 $225,516 $264,615
- --------------------------------------------------------------------------------
</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 $32.7 million.
67
<PAGE> 72
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 $ 44,645 5.50% $126,365 6.42% -- -- $ 518 6.99%
Mortgage-backed securities 217 8.05 24,600 6.40 $13,463 7.54% 12,032 8.09
Obligations of state and
political subdivisions (1) 6,395 7.15 24,467 7.21 14,182 8.07 6,848 9.43
Other (2) 5 5.50 285 6.62 502 7.93 10 5.49
-------- -------- ------- -------
Total $ 51,262 5.73% $175,717 6.53% $28,147 7.82% $19,408 8.24%
- ------------------------------------------------------------------------------------------------------------------------
Securities available for sale (3):
U.S. Treasury securities
and obligations of U.S.
government agencies $235,373 5.76%
Mortgage-backed securities 58,466 6.88
Obligations of state and
political subdivisions (1) 10,174 4.93
Other 6,553 7.60
--------
Total $310,566 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 $ 598,917 $ 486,674 16.8% 17.3%
Interest-bearing demand deposits 627,231 642,236 17.5 22.8
Savings deposits 379,575 347,876 10.6 12.4
Certificates of deposit less than $100,000 1,187,511 739,896 33.3 26.3
Certificates of deposit more that $100,000 412,825 285,540 11.5 10.2
IRA's 183,136 154,344 5.1 5.5
Open time deposits 186,290 154,763 5.2 5.5
- --------------------------------------------------------------------------------------------------
Total deposits $3,575,485 $2,811,329 100.0% 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. Interest-bearing demand deposits have decreased $15 million (2%) from
December 31, 1994 to December 31, 1995. The increase in average noninterest
demand deposits was approximately 23%. Included in this 23% increase is
approximately 19% related
68
<PAGE> 73
to an increase in custodial deposits of Colonial Mortgage Company with the
remaining approximately 4% primarily related to internal growth throughout the
Company's branch system. As noted above, the acquired thrift 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 and other parts of Florida in 1997. The
principal goal is to provide the Company's retail customer base with convenient
access to branch locations while enhancing the Company's potential for future
increases in profitability. 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 BORROWING
Short-term borrowing 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 $150,540 $171,264 $119,734
Federal Home Loan
Bank borrowings 465,000 210,050 190,150
Other short-term
borrowings 1,141 1,131 1,000
- ------------------------------------------------------------------------------------------
Total $616,681 $382,445 $310,884
- ------------------------------------------------------------------------------------------
</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
69
<PAGE> 74
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.
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 $656 million in 1995 and $412 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 $310
million. In 1995 these loans increased, using $51 million in funds. As noted
in previous sections, short-term borrowing increased $234 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
borrowing as opposed to increasing rate sensitive deposits. Deposit growth of
$516 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 $1.6
billion of residential real estate loans. These loans provide collateral for
the current $850 million credit line at the FHLB. The FBLB 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.
72
<PAGE> 75
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 $12.3 million for the payment of
dividends. The Parent Company's primary source of funds was $16.9 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 $1,007 million, or 29% of the total loan portfolio, due
within one year. Investment securities totaling $361 million or 62% 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 assettliability 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 a 7.1% negative gap at 12 months. Based
on this schedule, management believes that neither an increase or decrease in
interest rates would result in a material swing in net income. Management has
managed the asset/liability position of the bank through traditional sources.
The Company 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.
71
<PAGE> 76
<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 $ 36,839 $ 36,839 -- -- -- --
agreements
Investment securities 284,534 66,381 $ 13,436 $ 41,123 $ 90,657 $ 72,393
Securities available for sale 333,495 40,495 11,443 7,913 232,819 41,369
Mortgage loans held for sale 112,203 112,203 -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
Loans, net of unearned income 3,442,159 1,292,450 226,523 428,953 761,666 732,567
Allowance for possible loan losses (43,923) (16,314) (3,033) (5,459) (10,075) (9,042)
- -----------------------------------------------------------------------------------------------------------------------------
Net loans 3,398,236 1,276,136 223,490 423,494 751,591 723,525
Nonearning assets 469,891 459 100 100 29,660 439,572
- -----------------------------------------------------------------------------------------------------------------------------
Total assets $4,635,198 $1,532,513 $ 248,469 $ 472,630 $1,104,727 $1,276,859
- -----------------------------------------------------------------------------------------------------------------------------
Rate Sensitive Liabilities:
Interest-bearing demand deposits $ 627,231 $ 393,628 -- -- 233,603 --
Savings deposits 379,575 225,487 -- -- 154,088 --
Certificates of deposits less than 1,323,353 265,460 $ 224,083 $ 405,434 344,026 $ 84,350
$100,000
Certificates of deposits more than 416,578 94,026 69,841 120,796 129,514 2,401
$100,000
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 616,681 616,681 -- -- -- --
Long-term debt 46,263 25,184 87 174 4,157 16,661
Noncosting liabilities & equity 995,686 0 -- -- -- 995,686
- -----------------------------------------------------------------------------------------------------------------------------
Total Liabilities & Equity $4,635,198 $1,714,345 $ 314,695 $ 553,630 $ 952,484 $1,100,044
- -----------------------------------------------------------------------------------------------------------------------------
Gap -- $ (181,832) $ (66,226) $ (81,000) $ 152,243 $ 176,801
- -----------------------------------------------------------------------------------------------------------------------------
Cumulative Gap -- $ (181,832) $(248,058) $ (329,058) $ (176,815) $ --
- -----------------------------------------------------------------------------------------------------------------------------
</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 $570 million with a corresponding cumulative gap at
one year of negative $717 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 28%. 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.
72
<PAGE> 77
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 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) $ 297,637
less intangibles
Tier II Capital:
Allowable loan loss reserve 42,761
Subordinated debt 17,121
----------
Total Capital $ 357,519
Risk Adjusted Assets (thousands) $3,420,367
Total Assets (thousands) $4,635,198
</TABLE>
<TABLE>
<CAPTION> 1995 1994 1993
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tier I leverage ratio 7.36% 6.43% 5.79%
Risk Adjusted Capital
Ratios:
Tier I Capital Ratio 8.70% 9.24% 8.76%
Total Capital Ratio 10.45% 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 806,598 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 $56.9
million.
73
<PAGE> 78
FINANCIAL ACCOUNTING STANDARDS B0ARD 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 the 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.)
74
<PAGE> 79
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 merger of The Colonial BancGroup, Inc. with Jefferson Bancorp, Inc. which
occurred on January 3, 1997, and has been accounted for as a pooling 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 method 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
combination 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 11, 1997
75
<PAGE> 80
SUPPLEMENTAL CONSOLIDATED STATEMENT OF CONDITION
<TABLE>
<CAPTION>
December 31,
--------------------------
1995 1994
---------- ---------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and due from banks.......................................................... $ 180,437 $ 170,017
Interest-bearing deposits in banks............................................... 6,279 3,282
Federal funds sold............................................................... 36,839 15,310
Securities available for sale (Note 3)........................................... 333,495 225,516
Investment securities (market value: 1995, $287,803; 1994, $353,191; (Note 3)).... 284,534 364,374
Mortgage loans held for sale..................................................... 112,203 61,556
Loans, net of unearned income (Note 4)............................................ 3,442,159 2,554,238
Less:
Allowance for possible loan losses (Note 5)............................... (43,923) (40,137)
---------- ----------
Loans, net........................................................................ 3,398,236 2,514,101
Premises and equipment, net...................................................... 72,020 62,818
Excess of cost over tangible and identified intangible assets acquired, net...... 30,032 20,078
Mortgage servicing rights........................................................ 80,053 54,796
Other real estate owned.......................................................... 11,388 15,280
Accrued interest and other assets................................................ 89,682 76,229
---------- ----------
Total................................................................... $4,635,198 $3,583,357
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand................................................ $ 598,917 $ 486,674
Interest-bearing demand................................................... 627,231 642,236
Savings................................................................... 379,575 347,876
Time...................................................................... 1,969,762 1,334,543
---------- ----------
Total deposits................................................................... 3,575,485 2,811,329
FHLB short-term borrowings (Note 8).............................................. 465,000 210,050
Other short-term borrowings (Note 8)............................................. 151,681 172,395
Subordinated debt (Note 9)....................................................... 17,121 17,459
Other long-term debt (Note 9).................................................... 29,142 69,203
Other liabilities................................................................ 69,681 49,532
---------- ----------
Total liabilities...................................................... 4,308,110 3,329,968
---------- ----------
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:
34,776,292 shares issued and outstanding in 1995**.............................. 86,941
Class A Common Stock, $2.50 par value: 40,000,000 shares authorized, outstanding:
30,961,744 shares in 1994*..**................................................. 77,404
Class B Common Stock, $2.50 par value; 4,000,000 shares authorized, outstanding
1,120,176 shares in 1994*....**................................................. 3,175
Additional paid in capital...**.................................................. 142,779 116,805
Retained earnings................................................................ 99,798 68,665
Unearned compensation............................................................ (1,849) (840)
Unrealized gain (loss) on securities available for sale, net of taxes............ (581) (11,820)
---------- ----------
Total shareholders' equity............................................. 327,088 253,389
---------- ----------
Total.................................................................. $4,635,198 $3,583,357
========== ==========
- ----------------
</TABLE>
* On February 21, 1995 the Class A and Class B Common Stock were reclassified
into one class. (See Note 10.)
** Restated to reflect the impact of a two-for-one stock split in the form of
a 100% stock dividend paid February 11, 1997
See notes to supplemental consolidated financial statements.
76
<PAGE> 81
SUPPLEMENTAL CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
----------------------------------
1995 1994 1993
------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans................................................. $277,706 $203,010 $158,594
Interest and dividends on securities:
Taxable................................................................ 32,313 27,409 22,332
Nontaxable............................................................. 2,803 3,280 3,531
Dividends.............................................................. 2,140 1,779 1,239
Interest on federal funds sold and securities purchased under resale
agreements............................................................. 2,622 1,149 1,421
Other interest............................................................. 349 382 174
-------- -------- --------
Total interest income.................................................. 317,933 237,009 187,291
-------- -------- --------
INTEREST EXPENSE:
Interest on deposits....................................................... 126,525 83,742 63,976
Interest on short-term borrowings.......................................... 30,182 11,132 6,969
Interest on long-term debt................................................. 3,737 3,461 2,794
-------- -------- --------
Total interest expense................................................. 160,444 98,335 73,739
-------- -------- --------
NET INTEREST INCOME BEFORE PROVISION FOR POSSIBLE LOAN LOSSES.............. 157,489 138,674 113,552
Provision for possible loan losses (Notes 1, 5)............................ 7,500 7,836 11,185
-------- -------- --------
NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE LOAN LOSSES............... 149,989 130,838 102,367
-------- -------- --------
NONINTEREST INCOME:
Mortgage servicing fees.................................................... 23,429 22,216 21,079
Service charges on deposit accounts........................................ 18,048 15,648 13,697
Securities gains, net (Note 3)............................................. 633 1,649 2,568
Other charges, fees and commissions........................................ 3,786 3,414 2,719
Other income............................................................... 12,703 9,171 8,732
-------- -------- --------
Total noninterest income.............................................. 58,599 52,098 48,795
-------- -------- --------
NONINTEREST EXPENSE:
Salaries and employee benefits............................................. 57,200 59,867 53,861
Occupancy expense of bank premises, net.................................... 14,057 13,165 10,939
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).................................................... 50,025 45,292 39,832
-------- -------- --------
Total noninterest expense............................................. 141,112 133,829 117,251
-------- -------- --------
INCOME BEFORE INCOME TAXES, EXTRAORDINARY ITEMS AND THE
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING FOR INCOME TAXES............. 67,476 49,107 33,911
Applicable income taxes (Note 18).......................................... 24,014 16,349 10,308
-------- -------- --------
INCOME BEFORE EXTRAORDINARY ITEMS AND THE CUMULATIVE EFFECT OF
A CHANGE IN ACCOUNTING FOR INCOME TAXES................................ 43,462 32,758 23,603
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................................................................. $ 43,462 $ 32,758 $ 26,790
======== ======== ========
EARNINGS PER SHARE:
Primary:
Income before extraordinary items and the cumulative effect of a change
in accounting for income taxes*....................................... $ 1.23 $ 0.98 $ 0.82
Extraordinary item, net of income taxes*................................ - - (0.02)
Cumulative effect of a change in accounting for income taxes*........... - - 0.13
Net Income*............................................................. $ 1.23 $ 0.98 $ 0.93
Fully-diluted:
Income before extraordinary items and the cumulative effect of a change
in accounting for income taxes*....................................... $ 1.20 $ 0.97 $ 0.81
Extraordinary item, net of income taxes*................................ - - (0.01)
Cumulative effect of a change in accounting for income taxes*........... - - 0.12
Net income*............................................................. $ 1.20 $ 0.97 $ 0.92
AVERAGE NUMBER OF SHARES OUTSTANDING:
Primary*................................................................ 35,258 33,378 28,816
Fully-diluted*.......................................................... 37,034 34,912 31,002
</TABLE>
* Restated to reflect the impact of a two-for-one stock split in the
form of a 100% stock dividend paid February 11, 1997.
See notes to supplemental consolidated financial statements.
77
<PAGE> 82
SUPPLEMENTAL CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31, 1995, 1994 AND 1993
-----------------------------------------------------------------
CLASS A CLASS B
COMMON STOCK COMMON STOCK COMMON STOCK
----------------- ----------------- -----------------
SHARES* AMOUNT* SHARES* AMOUNT* SHARES* AMOUNT*
------ ------ ------ ------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1993.............................. 8,275,336 $20,688 637,528 $ 1,594
Two-for-one stock split (Note 1 and 10)............... 8,275,336 20,689 637,528 1,594
Adjustments for poolings-of-interests combinations
(Notes 1 and 2)..................................... 5,811,402 14,528
---------- ------- --------- -------- ---------- ---------
Restated Beginning Balance....................... 22,362,074 55,905 1,275,056 3,188
---------- ------- --------- -------- ---------- ---------
Shares issued under:
Directors Stock Plan............................... 26,232 66
Stock Option Plans................................. 69,984 175
Stock Bonus and Retention Plan..................... 43,200 108
Dividend Reinvestment.............................. 27,900 70
Issuance of shares for acquisitions................... 7,154,294 17,886 132 1
Net income............................................
Treasury stock activity of merged bank................ (8,836) (22)
Cash dividends: (Class A, $0.355 per share; Class B,
$15.5 per share)...................................
Cash dividends by a pooled bank prior to merger
Conversion of 7 1/2% convertible subordinated
debentures......................................... 214
Conversion of Class B Common Stock to Class A
Common Stock....................................... 1,398 3 (1,398) (3)
Unrealized gains on securities available for sale, net
of taxes...........................................
---------- ------- --------- -------- ---------- ---------
Balance, December 31, 1993..................... 29,676,460 74,191 1,273,790 3,184
---------- ------- --------- -------- ---------- ---------
Shares issued under:
Directors Stock Plan............................... 28,534 72
Stock Option Plans................................. 188,894 472
Dividend Reinvestment.............................. 46,026 115
Stock Bonus and Retention Plan..................... 44,500 111
Employee Stock Purchase Plan.......................... 4,372 11
Issuance of shares for previous year acqusitions...... 14,940 37
Issuance of common stock by a pooled bank............. 954,404 2,386
Net income............................................
Cash dividends: (Class A, $0.40 per share; Class B,
$0.20 per share)....................................
Cash dividends by a pooled bank prior to merger
Conversion of Class B Common Stock to Class A
Common Stock........................................ 3,614 9 (3,614) (9)
Unrealized loss on securities available for sale, net
of taxes............................................
---------- ------- --------- -------- ---------- ---------
Balance, December 31, 1994......................... 30,961,744 77,404 1,270,176 3,175
---------- ------- --------- -------- ---------- ---------
Shares issued under:
Directors Stock Plan................................ 1,716 4 32,332 $ 81
Stock Option Plan................................... 13,182 33 218,410 546
Dividend Reinvestment............................... 53,516 134
Stock Bonus and Retention Plan...................... 50,000 125
Employee Stock Purchase Plan.......................... 536 1 7,534 19
Issuance of common stock by a pooled bank............. 9,344 24 43,270 108
Conversion of Class A Common Stock and Class B
Common Stock to Common Stock....................... (30,986,522) (77,466) (1,270,176) (3,175) 32,256,698 80,641
Issuance of shares for acquisitions................... 2,089,994 5,225
Net income............................................
Cash Divdends (Class A, $0.1125; Class B, $0.0625;
Common, $0.3375 per share)..........................
Cash dividends by a pooled bank prior to merger
Conversion of 7 1/2% convertible subordinated
debentures.......................................... 23,418 59
Conversion of 12 1/3% convertible subordinated 1,120 3
debentures..........................................
Change in Unrealized loss on securities available
for sale, net of taxes..............................
---------- ------- --------- -------- ---------- ----------
Balance, December 31, 1995........................ 0 $ 0 0 $ 0 34,776,292 $ 86,941
========== ======= ========= ======== ========== ==========
</TABLE>
*Restated to reflect the impact of a two-for-one stock split in the form of a
100% stock dividend paid February 11, 1997.
See notes to supplemental consolidated financial statements.
78
<PAGE> 83
SUPPLEMENTAL CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
- --(Continued)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31, 1995, 1994 AND 1993
-------------------------------------------------------------
UNREALIZED
GAIN (LOSS) ON
ADDITIONAL SECURITIES TOTAL
PAID-IN RETAINED UNEARNED AVAILABLE SHAREHOLDERS'
CAPITAL* EARNINGS COMPENSATION FOR SALE EQUITY
---------- -------- ------------ ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance January 1, 1993.......................................... $ 60,006 $18,118 --- $100,406
Two-for-one stock split (Note 1 and 10).......................... <22,283> ---
Adjustments for poolings-of-interests combinations
(Notes 1 and 2)............................................... 24,689 7,533 (670) 46,080
-------- -------- ------- ------- --------
Restated Beginning Balance................................... 62,413 25,651 (670) --- 146,486
-------- -------- ------- ------- --------
Shares issued under:
Directors Stock Plan.......................................... 131 197
Stock Option Plans............................................ 220 394
Stock Bonus and Retention Plan................................ 332 (93) 347
Dividend Reinvestment......................................... 224 294
Issuance of shares for acquisitions.............................. 48,350 290 66,527
Net income....................................................... 26,790 26,790
Treasury stock activity of merged bank........................... (52) (74)
Cash dividends: (Class A, $0.355 per share; Class B,
$0.155 per share)............................................. <4,847> <4,847>
Cash dividends by a pooled bank prior to merger.................. <1,698> <1,698>
Conversion of 7 1/2% convertible subordinated
debentures.................................................... 2 2
Conversion of Class B Common Stock to Class A
Common Stock.................................................. --
Unrealized gains on securities available for sale, net
of taxes...................................................... 1,622 1,622
-------- -------- ------- ------- --------
Balance, December 31, 1993 111,620 46,186 (763) 1,622 236,040
-------- -------- ------- ------- --------
Shares issued under:
Directors Stock Plan.......................................... 212 284
Stock Option Plans............................................ 869 1,341
Dividend Reinvestment......................................... 374 489
Stock Bonus and Retention Plan................................ 340 (77) 375
Employee Stock Purchase Plan..................................... 38 48
Issuance of shares for previous year acquisitions................ 69 107
Issuance of common stock by a pooled bank........................ 3,283 (1,108) 4,560
Net income....................................................... 32,758 32,758
Cash dividends (Class A, $0.40 per share; Class B, $0.20 per
share)........................................................ <7,423> <7,432>
Cash dividends by a pooled bank prior to merger.................. <1,739> <1,729>
Conversion of Class B Common Stock to Class A
Common Stock.................................................. --
Unrealized loss on securities available for sale, net
of taxes...................................................... $(13,442) (13,442)
-------- -------- ------- ------- --------
Balance, December 31, 1994................................... 116,805 68,665 (840) (11,820) 253,389
-------- -------- ------- ------- --------
Shares issued under:
Directors Stock Plan.......................................... 241 326
Stock Option Plan............................................. 1,143 1,722
Dividend Reinvestment......................................... 448 582
Stock Bonus and Retention Plan................................ 697 $ (822) ---
Employee Stock Purchase Plan..................................... 90 110
Issuance of common stock by a pooled bank........................ 487 (187) 432
Conversion of Class A Common Stock and Class B
Common Stock to Common Stock..................................
Issuance of shares for acquisitions.............................. 22,591 27,816
Net income....................................................... 43,462 43,462
Cash Dividends (Class A, $0.1125; Class B, $0.0625
Common, $0.3375) per share)................................... <10,520> (10,520)
Cash dividends by a pooled bank prior to merger.................. <1,809> <1,809>
Conversion of 7 1/2% convertible subordinated
debentures.................................................... 270 329
Conversion of 12 1/3% convertible subordinated
debentures.................................................... 7 10
Change in Unrealized loss on securities available
for sale, net of taxes........................................ 11,239 11,239
-------- -------- ------- ------- --------
Balance, December 31, 1995................................... $142,779 $ 99,798 $(1,849) $ (581) $327,088
======== ======== ======= ======= ========
</TABLE>
* Restated to reflect the impact of a two-for-one stock split in the form of a
100% stock dividend paid February 11, 1997.
See notes to supplemental consolidated financial statements.
79
<PAGE> 84
SUPPLEMENTAL CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
---------------------------------------
1995 1994 1993
--------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................................... $ 43,462 $ 32,758 $ 26,790
Adjustments to reconcile net income to net cash (used in) provided by
operating activities:
Depreciation, amortization and accretion.................................... 13,613 11,230 10,015
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.......................................... 7,500 7,836 11,185
Deferred income taxes....................................................... (2,223) (2,361) (6,384)
Gain on sale of securities, net............................................. (655) (1,649) (2,568)
Additions to mortgage servicing rights...................................... (32,139) (34,624) (19,377)
Net (increase) decrease in mortgage loans held for sale..................... (50,647) 309,766 (218,296)
Increase in interest receivable............................................. (8,697) (3,977) (1,011)
Decrease (increase) in prepaids and other receivables....................... 4,683 (3,701) (2,773)
(Decrease) increase in accrued expenses and accounts payable................ (4,687) (35,775) 22,944
Increase (decrease) in accrued income taxes................................. 3,054 (2,491) (953)
Increase (decrease) in interest payable..................................... 10,643 2,233 (1,025)
Other, net.................................................................. (12,558) 5,700 654
--------- --------- ---------
Total adjustments....................................................... (61,852) 260,222 (198,976)
--------- --------- ---------
Net cash (used in) provided by operating activities......................... (18,390) 292,980 (172,186)
--------- --------- ---------
Cash flows from investing activities:
Proceeds from maturities of securities available for sale................. 51,067 43,350 42,209
Proceeds from sales of securities available for sale...................... 69,711 93,651 110,463
Purchase of securities available for sale................................. (140,576) (92,012) (153,689)
Proceeds from maturities of investment securities......................... 91,671 74,123 206,276
Proceeds from sales of investment securities.............................. 10,119 - 18,442
Purchases of investment securities........................................ (55,186) (131,499) (224,429)
Net (increase) decrease in short-term investment securities............... (4,500) (1,094) 57,000
Net increase in loans..................................................... (655,968) (412,366) (174,710)
Cash and cash equivalents received in bank acquisitions, net (Note 2)..... 23,201 (3,121) 71,384
Cash and cash equivalents received in the purchase of assets and assumption
of liabilities (Note 2)................................................ - 15,275 4,491
Capital expenditures...................................................... (10,881) (11,637) (9,806)
Proceeds from sale of other real estate owned............................. 10,606 7,570 6,682
Other, net................................................................ 2,474 6,799 8,466
--------- --------- ---------
Net cash used in investing activities....................................... (608,262) (410,961) (37,221)
--------- --------- ---------
Cash flows from financing activities:
Net increase in demand, savings and time deposits......................... 516,307 12,764 87,550
Net increase in federal funds purchased and repurchase agreements
and other short-term borrowings........................................ 194,168 71,302 192,036
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.................................... 2,369 6,198 594
Dividends paid............................................................ (12,329) (9,171) (6,545)
--------- --------- ---------
Net cash provided by financing activities................................. 657,097 92,986 277,783
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents...................... 30,445 (24,995) 68,376
Cash and cash equivalents at beginning of year............................ 188,411 213,406 145,030
--------- --------- ---------
Cash and cash equivalents at end of year (Note 1)......................... $ 218,856 $ 188,411 $ 213,406
========= ========= =========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest.............................................................. $ 148,688 $ 95,170 $ 75,648
Income taxes.......................................................... 21,749 23,719 14,294
Non-cash transactions:
Transfer of loans to other real estate................................ $ 5,642 $ 4,717 $ 2,945
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 33,457 129,946
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 supplemental consolidated financial statements.
80
<PAGE> 85
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 merger with Jefferson Bancorp, Inc. on January 3,
1997. 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 combination 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. The consolidated financial statements of
BancGroup for 1995, 1994 and 1993 have also previously been restated to give
retroactive effect to the July 3, 1996 mergers with Commercial Bancorp of
Georgia, Inc. and Southern Banking Corporation which were accounted for as
poolings 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.
81
<PAGE> 86
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 $17,064,000 and these
loans had a corresponding valuation allowance of $6,257,000. 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 $19,150,000.
BancGroup recognized approximately $1,121,000 of interest on impaired loans
during the portion of the year that they were impaired.
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<PAGE> 87
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 uncollectible is charged
against the allowance and subsequent recoveries, if any, are credited to the
allowance.
Management's periodic evaluation of the adequacy of the allowance is based
on the Bank's past loan loss experience, known and inherent risks in the
portfolio, adverse situations that may affect the borrowers' ability to repay,
estimated value of any underlying collateral, and an analysis of current
economic conditions. While management believes that it has established the
allowance in accordance with generally accepted accounting principles and has
taken into account the views of its regulators and the current economic
environment, there can be no assurance that in the future the Bank's regulators
or its economic environment will not require further increases in the
allowance.
Income Recognition on Impaired and Nonaccrual Loans-Loans, including
impaired loans, are generally classified as nonaccrual if they are past due as
to maturity or payment of principal or interest for a period of more than 90
days, unless such loans are well collateralized and in the process of
collection. If a loan or a portion of a loan is classified as doubtful or is
partially charged off, the loan is generally classified as nonaccrual. Loans
that are on a current payment status or past due less than 90 days may also be
classified as nonaccrual if repayment in full of principal and/or interest is
in doubt.
Loans may be returned to accrual status when all principal and interest
amounts contractually due (including arrearages) are reasonably assured of
repayment within an acceptable period of time, and there is a sustained period
of repayment performance (generally a minimum of six months) by the borrower,
in accordance with the contractual terms of interest and principal.
While a loan is classified as nonaccrual and the future collectibility of
the recorded loan balance is doubtful, collections of interest and principal
are generally applied as a reduction to principal outstanding, except in the
case of loans with scheduled amortizations where the payment is generally
applied to the oldest payment due. When the future collectibility of the
recorded loan balance is expected, interest income may be recognized on a cash
basis. In the case where a nonaccrual loan has been partially charged off,
recognition of interest on a cash basis is limited to that which would have
been recognized on the recorded loan balance at the contractual interest rate.
Receipts in excess of that amount are recorded as recoveries to the allowance
for loan losses until prior charge offs have been fully recovered. Interest
income recognized on a cash basis was immaterial for the years ended December
31, 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.
83
<PAGE> 88
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
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
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<PAGE> 89
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. All earnings per share data
has been restated to reflect a two-for-one stock split effected in the form of
a 100 percent stock dividend distributed on February 11, 1997.
Advertising Costs-Advertising costs are expensed as incurred. Advertising
expense was $4,078,000, $2,964,000 and $1,768,000 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 January 3, 1997, BancGroup completed a business combination with Jefferson
Bancorp, Inc. (JBC), of Miami Beach, Florida, with the issuance of 3,854,952
shares of BancGroup common stock. At the date of combination, JBC had assets
of $472 million and equity of $32 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 JBC.
85
<PAGE> 90
On July 3, 1996, BancGroup completed a business combination with
Commercial Bancorp of Georgia, Inc. (CBG), of Lawrenceville, Georgia, with the
issuance of 2,306,460 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 2,858,494
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
4,545,454 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.
The following tables show the effect of the above transactions on results
of operations for the periods prior to the merger and shareholders' equity at
January 1, 1993 (earliest date presented). Since these business combinations
were accounted for as poolings of interests, the combined results shown below
are the results for BancGroup as shown in the accompanying financial statements.
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Total Revenue(l):
BancGroup ..................................... $168,618 $122,806 $ 93,692
JBC ........................................... 21,537 22,019 24,430
CBG ........................................... 12,821 11,104 9,668
SBC ........................................... 13,112 8,725 5,762
CMC ........................................... 26,118 28,795
-------- -------- --------
Combined ...................................... $216,088 $190,772 $162,347
======== ======== ========
Net Income (loss):
BancGroup ..................................... $ 38,794 $ 27,671 $ 18,709
JBC ........................................... 1,909 3,017 2,817
CBG ........................................... 668 698 1,270
SBC ........................................... 2,091 1,733 810
CMC ........................................... (361) 3,184
-------- -------- --------
Combined ...................................... $ 43,462 $ 32,758 $ 26,790
======== ======== ========
<CAPTION>
JANUARY 1, EFFECT JANUARY 1,
1993 AS OF 1993
REPORTED COMBINATIONS RESTATED
--------- ------------ ---------
<S> <C> <C> <C>
Common Stock ...................................... $ 33,200 $ 25,894 $ 59,094
Additional Paid in Capital ......................... 44,534 17,877 62,411
Retained Earnings .................................. 17,968 7,683 25,651
Unearned compensation .............................. (670) (670)
-------- -------- --------
Total equity ....................................... $ 95,702 $ 50,784 $146,486
======== ======== ========
</TABLE>
- ------------
(1) Includes net interest income before provision for loan losses and
noninterest income.
86
<PAGE> 91
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.
<TABLE>
<CAPTION>
COMMON
STOCK ISSUED
ACQUISITION ----------------------
DATE SHARES VALUE
----------- ------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
BANK
- ----
Brundidge Banking Company ............................... March 31 532,868 $ 6,209
Mt. Vernon Financial Corp ............................... October 20 1,043,440 14,608
Farmers and Merchants Bank ............................. November 3 513,686 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>
1995 1994
-------- --------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C>
Net interest income before provision for possible loan losses .................. $161,391 $169,177
Net income .................................................................... 44,440 37,767
Earnings per share:
Primary .................................................................. 1.21 1.06
Fully-diluted ............................................................ 1.16 1.05
Average shares outstanding:
Primary .................................................................. 36,660 35,468
Fully-diluted ............................................................ 38,436 37,002
</TABLE>
87
<PAGE> 92
The following chart summarizes the assets acquired and the liabilities
assumed in connection with the 1995 acquisitions.
<TABLE>
<CAPTION>
TOTAL
--------------
(IN THOUSANDS)
<S> <C>
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 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.
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 154,818 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 January 3, 1997, BancGroup completed the combination with Tomoka
Bancorp, Inc. ("Tomoka"). A total of 661,992 shares of BancGroup's Common
Stock were issued to the shareholders of Tomoka. At December 31, 1996, Tomoka
had assets of approximately $76.7 million, deposits of approximately $68.2
million and stockholders' equity of $6.5 million. Tomoka currently has four
offices located in Ormond Beach, New Smyrna Beach, Pierson and Port Orange,
Florida. BancGroup's financial statements have not been restated to include
Tomoka, the effect of which is not material to BancGroup's financial condition
or results of operations.
On January 9, 1997, BancGroup completed the combination with First
Family Financial Corporation ("First Family"). First Family's subsidiary First
Family Bank, FSB, based in Eustis, Florida will merge with BancGroup's existing
subsidiary bank in Orlando, Florida, Colonial Bank. The First Family
combination was accounted for as a purchase with the issuance of 330,400 shares
of BancGroup Common Stock and payment of $6.5 million in cash to First Family
shareholders. At December 31, 1996, First Family had assets of $167.3 million,
deposits of $156.7 million and stockholders' equity of $8.7 million. First
Family has six offices located in Lake County, Florida which is considered
part of the Orlando Metropolitan area.
On January 31, 1997, BancGroup completed the combination with D/W
Bankshares, Inc. ("Bankshares"). Bankshares is a Georgia corporation and is a
holding company for Dalton/Whitfield Bank & Trust located in Dalton, Georgia.
Bankshares will be merged into BancGroup's subsidiary, Colonial Bank,
headquartered in Lawrenceville, Georgia. A total of 1,016,548 shares of
BancGroup Common Stock were issued to the shareholders of Bankshares. At
December 31, 1996, Bankshares had assets of $138.7 million, deposits of $124.4
million and stockholders' equity of $11.0 million. BancGroup's financial
statements have not been restated to include Bankshares, the effect of which is
not material to BancGroup's financial condition or results of operations.
3. SECURITIES
The carrying and market values of investment securities are summarized as
follows:
INVESTMENT SECURITIES
<TABLE>
<CAPTION>
1995 1994
------------------------------------------ -------------------------------------------
AMORTIZED UNREALIZED UNREALIZED MARKET AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE
--------- ---------- ---------- -------- --------- ---------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury
securities and
obligations of U.S.
government
agencies ............. $217,801 $3,834 $(1,646) $219,989 $289,341 $204 $(10,070) $279,475
Obligations of state
and political
subdivisions ......... 47,111 1,250 (128) 48,233 44,613 499 (1,100) 44,012
Other ................. 19,622 7 (48) 19,581 30,420 62 (778) 29,704
-------- ------ ------- -------- -------- ---- -------- --------
Total .............. $284,534 $5,091 $(1,822) $287,803 $364,374 $765 $(11,948) $353,191
======== ====== ======= ======== ======== ==== ======== ========
</TABLE>
88
<PAGE> 93
The carrying and market values of securities available for sale are
summarized as follows:
SECURITIES AVAILABLE FOR SALE
<TABLE>
<CAPTION>
1995 1994
---------------------------------------- ------------------------------------------
AMORTIZED UNREALIZED UNREALIZED MARKET AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE
-------- ------ ------- -------- -------- ---- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S.
government agencies ............. $285,283 $2,155 $(3,944) $283,494 $212,924 $ 40 $(17,840) $195,124
Obligations of state and political
subdivisions ..................... 10,174 60 (46) 10,188 8,044 2 (528) 7,518
Other ................................ 38,998 1,020 (205) 39,813 23,489 407 (1,022) 22,874
-------- ------ ------- -------- -------- ---- -------- --------
Total ......................... $334,455 $3,235 $(4,195) $333,495 $244,457 $449 $(19,390) $225,516
======== ====== ======= ======== ======== ==== ======== ========
</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 $25,744,000 and $13,269,000 in Federal Home Loan Bank
stock at December 31, 1995 and 1994, respectively.
Securities with a carrying value of approximately $400,616,000 and
$378,854,000 at December 31, 1995 and 1994 respectively, were pledged for
various purposes as required or permitted by law.
Gross gains of $734,000, $1,845,000 and $2,039,000 and gross losses of
$82,000, $201,000 and $84,000 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
COST VALUE COST VALUE
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Due in one year or less ............................... $ 51,045 $ 51,315 $ 78,445 $ 77,452
Due after one year through five years ................. 151,117 154,152 138,550 138,429
Due after five years through ten years ................. 14,684 15,263 25,158 25,691
Due after ten years ................................... 7,376 7,567 9,947 9,843
-------- -------- -------- --------
224,222 228,297 252,100 251,415
Mortgage-backed securities ............................. 50,312 49,506 58,466 58,196
-------- -------- -------- --------
Total ............................................. $274,534 $277,803 $310,566 $309,611
======== ======== ======== ========
</TABLE>
89
<PAGE> 94
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.
4. LOANS
A summary of loans follows:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Commercial, financial, and agricultural ....................... $ 472,064 $ 405,084
Real estate-commercial ......................................... 769,241 675,204
Real estate-construction ....................................... 362,558 238,233
Real estate-mortgage ........................................... 1,551,525 984,328
installment and consumer ....................................... 228,357 193,671
Other ......................................................... 61,153 60,929
---------- ----------
Subtotal ....................................................... $3,444,898 $2,557,449
Unearned income ............................................... (2,739) (3,211)
---------- ----------
Total ......................................................... $3,442,159 $2,554,238
========== ==========
</TABLE>
BancGroup's lending is concentrated throughout Alabama, southern Tennessee,
central Georgia and central and south Florida, and repayment of the 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 $36.5 million and $56.2 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>
BALANCE BALANCE
1/1/95 ADDITIONS REPAYMENTS 12/31/95
------- --------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
$56,163 $32,583 $52,262 $36,484
</TABLE>
90
<PAGE> 95
5. ALLOWANCE FOR POSSIBLE LOAN LOSSES
An analysis of the allowance for possible loan losses is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance, January 1 ........................... $40,137 $34,770 $23,338
Addition due to acquisitions ................. 1,129 501 6,276
Provision charged to income ................. 7,500 7,836 11,185
Loans charged off ........................... (7,466) (6,687) (8,587)
Recoveries ................................... 2,623 3,717 2,558
------- ------- -------
Balance, December 31 ......................... $43,923 $40,137 $34,770
------- ------- -------
</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>
CONTRACT AMOUNT
-----------------------
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Financial instruments whose contract amounts represent credit risk:
Loan commitments ........................................................... $555,049 $561,492
Standby letters of credit ................................................... 30,322 20,091
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.
91
<PAGE> 96
7. PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Land ..................................................... $ 15,658 $ 14,044
Bank premises ........................................... 62,096 55,957
Equipment ............................................... 53,440 45,977
Leasehold improvements ................................... 4,615 4,445
Construction in progress ................................. 1,993 869
Automobiles ............................................. 59 42
-------- --------
Total ............................................... 137,861 121,334
Less accumulated depreciation and amortization ........... 65,841 58,516
-------- --------
Premises and equipment, net ............................. $ 72,020 $ 62,818
======== ========
</TABLE>
8. SHORT-TERM BORROWINGS
Short-term borrowings are summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal funds purchased and securities sold under repurchase
agreements ................................................... $150,540 $171,264 $119,734
FHLB borrowings ................................................ 465,000 210,050 190,150
Other short-term borrowings .................................... 1,141 1,131 1,000
-------- -------- --------
Total ....................................................... $616,681 $382,445 $310,884
======== ======== ========
</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,
1994 and 1993.
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>
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Average amount outstanding during the year ............... $502,767 $257,561 $ 217,669
Maximum amount at any month-end ......................... 638,249 378,930 338,145
Weighted average interest rate:
During year ............................................. 6.00% 4.31% 3.19%
End of year ............................................. 5.78% 5.62% 3.20%
</TABLE>
92
<PAGE> 97
9. LONG-TERM DEBT
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
1995 1994
------- -------
(IN THOUSANDS)
<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 $9.125 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, 806,598 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 $14.00 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 687,796 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 1,070,000 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 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.
93
<PAGE> 98
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>
EXPECTED BALANCE AT
CLASS MATURITY DECEMBER 31,1995
----- ----------------- ----------------
(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, long-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.
On January 29, 1997, BancGroup issued, through a special purpose trust,
$70,000,000 of trust preferred securities in a private placement offering. In
BancGroup's consolidated statement of condition, these securities will be shown
as Long-Term Debt.
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
94
<PAGE> 99
Class A Common Stock. Shares of Class A Common Stock were not convertible into
any other securities of BancGroup.
On January 15, 1997, BancGroup's Board of Directors declared a two-for-one
stock split which was effected in the form of a 100 percent stock dividend
distributed on February 11, 1997. The stated par value of each share was not
changed from $2.50. Accordingly, all prior period information has been
restated to reflect the reclassification from additional paid in capital to
common stock. Additionally, all share and per share amounts in earnings per
share calculations have been restated to retroactively reflect the stock split.
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 $60 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 $56.9 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 ........................................ $ 6,708
1997 ........................................ 5,478
1998 ........................................ 4,536
1999 ........................................ 3,991
2000 ........................................ 3,385
Thereafter .................................. 7,912
-------
Total .................................... $32,010
=======
</TABLE>
Rent expense for all leases amounted to $8,099,000 in 1995, $6,634,000 in
1994 and $5,262,000 in 1993.
13. EMPLOYEE BENEFIT PLANS
BancGroup and the majority of 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.
95
<PAGE> 100
EMPLOYEE PENSION BENEFIT PLAN STATUS AT DECEMBER 31:
<TABLE>
<CAPTION>
1995 1994
------- -------
(IN THOUSANDS)
<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>
1995 1994 1993
---- ---- ----
(IN THOUSANDS)
<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 59,874 and 58,194 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
96
<PAGE> 101
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 1,100,000 shares of
Common Stock are reserved for issuance under the 1992 Plan. At December 31,
1995 and 1994, 977,038 and 858,538 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 1,600,000 shares
of Common Stock are reserved for issuance under the 1992 Nonqualified Plan. At
December 31, 1995 and 1994, 1,565,500 and 1,573,000 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 JBC, SBC and CBG combinations, BancGroup assumed qualified
stock options and nonqualified stock options in exchange for existing officers
and directors and other stock options according to the respective exchange
ratios.
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
-----------------------------
QUALIFIED NON QUALIFIED
PLANS PLANS
--------- -------------
<S> <C> <C>
Outstanding at December 31, 1992 ............................................... 460,262 1,358,790
Granted (at $2.125-$10.185 per share) ........................................... 140,744 370,838
Exercised (at $3.08-$8.525 per share) ........................................... (33,102) (37,700)
Cancelled (at $8.405 per share) ................................................. (29,498)
-------- ---------
Outstanding at December 31, 1993 ............................................... 538,406 1,691,928
Granted (at $5.74-$10.32 per share) ............................................ 88,992 155,222
Exercised (at $2.125-$7.78 per share) ........................................... (131,866) (58,670)
Cancelled (at $7.975 per share) ................................................. (29,262)
-------- ---------
Outstanding at December 31, 1994 ............................................... 466,270 1,788,480
Granted (at $8.445-$13.495 per share) ........................................... 8,482 36,862
Exercised (at $3.08-$8.90 per share) ............................................ (144,614) (105,448)
-------- ---------
Outstanding at December 31, 1995 ............................................... 330,138 1,719,894
-------- ---------
</TABLE>
97
<PAGE> 102
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 Prices
- ------------- ----------- ---------
<S> <C> <C>
$3.08-$3.17 ..................................................................... 319,540 $ 986,384
$3.625-$4.31..................................................................... 792,122 3,039,062
$4.875-$5.74 ................................................................... 129,390 739,941
$7.865-$9.94 .................................................................... 809,334 6,945,703
----------- -----------
Total ..................................................................... 2,050,396 $11,711,090
=========== ===========
</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 am issued annually. All shares become vested at the
expiration of the director's term. During 1995, 1994 and 1993, respectively,
34,048, 28,534, and 26,232 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 1,500,000 shares have been reserved
for issuance under this Plan. There were 51,300 shares outstanding of which 260
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 300,000 shares authorized for
issuance under this Plan. There were 12,442 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.
On September 30, 1996 Congress passed legislation requiring thrifts and
commercial banks, including BancGroup, which have acquired thrifts in the past
to pay a special assessment to recapitalize the Savings Association Insurance
Fund (SAIF). This one-time payment resulted in a pre-tax expense of $3,817,000
for BancGroup in 1996.
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.
98
<PAGE> 103
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.
17. OTHER EXPENSE
The following charges have been included in Other Expense:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Stationery, printing, and supplies ........... $ 3,261 $ 3,378 $ 3,145
Postage ..................................... 2,170 1,860 1,684
Telephone ................................... 3,585 3,197 2,808
Insurance ................................... 1,633 2,030 1,799
Legal fees ................................... 2,604 3,038 2,167
Advertising and public relations ............. 4,078 2,964 1,768
FDIC assessment ............................. 4,204 6,072 4,726
Other ....................................... 28,490 22,753 21,735
------- ------- -------
Total ..................................... $50,025 $45,292 $39,832
======= ======= =======
</TABLE>
18. INCOME TAXES
The components of income taxes were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Currently payable
Federal .................................... $23,666 $17,656 $12,708
State ...................................... 2,254 1,311 1,215
Deferred ...................................... (1,906) (2,618) (3,615)
------- ------- -------
Total ...................................... $24,014 $16,349 $10,308
======= ======= =======
</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.
99
<PAGE> 104
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>
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Tax at statutory rate on income from operations ......................... $23,567 $17,149 $11,844
Add:
State income taxes, net of federal tax benefit ......................... 1,519 858 614
Amortization of net purchase accounting adjustments ..................... 237 465 375
Other ................................................................... 734 (122) (267)
------- ------- -------
Total ............................................................... 26,057 18,350 12,566
======= ======= =======
Deduct:
Nontaxable interest income ........................................... 1,791 1,768 1,833
Dividends received deduction ......................................... 252 233 425
------- ------- -------
Total ............................................................... 2,043 2,001 2,258
------- ------- -------
Total income taxes .................................................. $24,014 $16,349 $10,308
======= ======= =======
</TABLE>
The components of BancGroup's net deferred tax asset as of December 31,
1995 and 1994, were as follows:
<TABLE>
<CAPTION>
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Allowance for possible loan losses .............................................. $16,164 $14,506
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 ............................................... 1,513 1,645
Other liabilities and reserves .................................................. 1,890 623
Deferred loan fees, net .......................................................... 715 1,263
Securities valuation reserve .................................................... (18) 183
Excess healthcare contributions .................................................. 469 715
Unrealized loss on securities available for sale ................................ 1,055 7,053
Other ............................................................................ 2,108 2,185
------- -------
Total deferred tax asset ....................................................... 28,067 32,160
------- -------
Deferred tax liabilities:
Accelerated tax depreciation .................................................... 574 702
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 ............................................................................ 1,984 412
------- -------
Total deferred tax liability ................................................... 8,658 8,185
------- -------
Net deferred tax asset ......................................................... $19,409 $23,975
======= =======
</TABLE>
100
<PAGE> 105
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 available.
If a quoted market price is not available, fair value is estimated using
quoted market prices for similar securities.
-MORTGAGE LOANS HELD FOR SALE-For these short-term instruments, the 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.
101
<PAGE> 106
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
AMOUNT VALUE AMOUNT VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Financial assets:
Cash and short-term investments ...................... $ 227,626 $ 227,626 $ 188,609 $ 188,609
Securities available for sale ........................ 332,247 332,247 224,812 224,992
Investment securities ................................ 285,782 289,111 365,078 353,894
Mortgage loans held for sale .......................... 112,203 113,669 61,556 61,566
Mortgage servicing rights and excess servicing fees ... 88,165 130,156 63,821 101,327
Loans ................................................ 3,442,159 2,554,237
Less: allowance for loan losses ...................... (43,923) (40,137)
---------- ---------- ---------- ----------
Loans, net ............................................. 3,398,236 3,451,306 2,514,100 2,527,393
---------- ---------- ---------- ----------
Total .............................................. $4,444,259 $4,544,115 $3,417,976 $3,457,781
========== ========== ========== ==========
Financial liabilities:
Deposits .............................................. $3,575,485 $3,584,971 $2,811,331 $2,794,852
Short-term borrowings ................................ 616,681 616,681 382,445 382,395
Long-term debt ........................................ 46,263 53,600 86,662 82,758
---------- ---------- ---------- ----------
Total .............................................. $4,238,429 $4,255,252 $3,280,438 $3,260,005
========== ========== ========== ==========
</TABLE>
20. CONDENSED FINANCIAL INFORMATION OF THE COLONIAL BANCGROUP, INC. (PARENT
COMPANY ONLY)
STATEMENT OF CONDITION
<TABLE>
<CAPTION>
DECEMBER 3l
-----------------------
1995 1994
-------- ---------
(IN THOUSANDS)
<S> <C> <C>
ASSETS:
Cash* .......................................................... $ 4,892 $ 2,073
Investment in subsidiaries* .................................... 350,019 271,207
Intangible assets .............................................. 4,213 4,670
Other assets .................................................... 6,863 8,344
-------- --------
Total assets ................................................ $365,987 $286,294
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Short-term borrowings .......................................... $ 1,000 $ 1,000
Subordinated debt .............................................. 17,121 17,459
Other long-term debt ............................................ 16,499 11,250
Other liabilities .............................................. 4,279 3,196
Shareholders' equity ............................................ 327,088 253,389
-------- ---------
Total liabilities and shareholders' equity .................. $365,987 $286,294
======== ========
</TABLE>
- ---------------------
* Eliminated in consolidation.
102
<PAGE> 107
20. CONDENSED FINANCIAL INFORMATION OF THE COLONIAL BANCGROUP, INC. (PARENT
COMPANY ONLY)
(CONTINUED)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
INCOME:
Cash dividends from subsidiaries* ............................... $16,949 $14,277 $12,451
Interest and dividends on short-term investments* ............... 90 87 115
Other income ..................................................... 1,430 1,933 2,951
------- ------- -------
Total income ................................................. 18,469 16,297 15,517
------- ------- -------
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 ................................................... 5,416 5,727 5,370
------- ------- -------
Total expenses ............................................... 9,579 9,951 9,629
------- ------- -------
Income before income taxes, extraordinary item and equity in
undistributed net income of subsidiaries ....................... 8,890 6,346 5,888
Income tax benefit ............................................... 2,309 2,941 1,975
Extraordinary item, net of income taxes ......................... - - (416)
------- ------- -------
Income before equity in undistributed net income of
subsidiaries ..................................................... 11,199 9,287 7,447
Equity in undistributed net income of subsidiaries* ............. 32,263 23,471 19,343
------- ------- -------
Net income ................................................... $43,462 $32,758 $26,790
======= ======= =======
</TABLE>
* Eliminated in consolidation.
103
<PAGE> 108
20. CONDENSED FINANCIAL INFORMATION OF THE COLONIAL BANCGROUP, INC. (PARENT
COMPANY ONLY)
(CONTINUED)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
---------------------------
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ....................................................... $43,462 $32,758 $26,790
Adjustments to reconcile net income to net cash provided by operating
activities:
Gain on sale of assets ......................................... - (7) 92
Depreciation, amortization and accretion ....................... 1,090 1,066 1,084
(Increase) decrease in prepaids and other assets ............... (2,726) 57 1,317
Increase (decrease) in accrued income taxes ................... 3,387 (727) (2,243)
Increase (decrease) in accrued expenses ....................... 1,735 (19) (157)
Undistributed earnings of subsidiaries* ....................... (32,264) (23,469) (19,343)
------- ------- -------
Total adjustments ........................................... (28,778) (23,099) (19,250)
------- ------- -------
Net cash provided by operating activities ....................... 14,684 9,659 7,540
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in loans ........................................... 18
Capital expenditures ............................................. (175) (343) (115)
Proceeds from sale of premises and equipment ..................... 538 399 570
Additional investment in subsidiaries* ........................... (7,492) (5,909) (418)
------- ------- -------
Net cash provided by (used in) investing activities ............. (7,129) (5,853) 55
------- ------- -------
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 Subordinated debt ................................. - - (15,338)
Proceeds from issuance of common stock ........................... 2,405 6,953 798
Dividends paid ................................................... (12,340) (9,170) (6,545)
Other, net ....................................................... (50) (522) (27)
------- ------- -------
Net cash used in financing activities ........................... (4,736) (4,739) (9,662)
------- ------- -------
Net (decrease) increase in cash and cash equivalents ............. 2,819 (933) (2,067)
Cash and cash equivalents at beginning of year ................... 2,073 3,006 5,073
CASH AND CASH EQUIVALENTS AT END OF YEAR* ....................... $ 4,892 $ 2,073 $ 3,006
======= ======= =======
Supplemental disclosure of cash flow information:
Cash paid (received) during the year for:
Interest ....................................................... $ 2,661 $ 2,489 $ 2,674
Income taxes ................................................... (274) (860) 703
</TABLE>
- ------------------
* Eliminated in consolidation.
104
<PAGE> 109
- --------------------------------------------------------------------------------
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 .......................................... 12 11/16 9 3/4 $0.1125
Class B .......................................... -- -- 0.0625
Common ........................................... -- -- --
2nd Quarter
Common ........................................... 13 5/8 11 9/16 0.1125
3rd Quarter
Common ........................................... 14 15/16 13 3/4 0.1125
4th Quarter
Common ........................................... 16 7/16 14 1/4 0.1125
- -----------------------------------------------------------------------------------------------------------------
1994
1st Quarter
Class A .......................................... 10 1/8 9 $0.10
Class B .......................................... -- -- 0.05
2nd Quarter
Class A .......................................... 12 1/2 9 5/8 0.10
Class B .......................................... -- -- 0.05
3rd Quarter
Class A .......................................... 12 3/8 11 0.10
Class B .......................................... -- -- 0.05
4th Quarter
Class A .......................................... 11 7/8 9 3/4 0.10
Class B .......................................... -- -- 0.05
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
VOTING SECURITIES AND SHAREHOLDERS
As of December 31, 1995, BancGroup had outstanding 31,039,376 shares of
Common Stock, with 5,388 shareholders of record.
As of December 31,1994, BancGroup had outstanding 27,420,590 shares of Class
A Common Stock and 1,270,176 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 28,715,606 shares of Common Stock
outstanding following such reclassification with 5,196 shareholders of record.
105
<PAGE> 110
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>
106
<PAGE> 111
Part I, Item 1
Condensed Consolidated Financial Statements
<PAGE> 112
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CONDITION (Unaudited)
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1996 1995 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets: (Restated) (Restated)
Cash and due from banks................................................ $ 150,320 $ 162,891 $ 125,645
Interest-bearing deposits in banks..................................... 4,977 6,279 4,802
Federal funds sold..................................................... 32,139 36,650
Securities available for sale.......................................... 289,378 214,293 136,201
Investment securities.................................................. 297,397 284,539 352,483
Mortgage loans held for sale........................................... 161,864 110,486 140,437
Loans, net of unearned income.......................................... 3,570,490 3,175,560 2,848,089
Less:
Allowance for possible loan losses................................... (45,098) (41,489) (39,282)
- -----------------------------------------------------------------------------------------------------------------------
Loans, net............................................................. 3,525,392 3,134,071 2,808,807
Premises and equipment................................................. 76,620 65,833 58,470
Excess of cost over tangible and identified intangible
assets acquired, net................................................. 30,624 29,440 21,438
Mortgage servicing rights.............................................. 95,076 80,053 74,489
Other real estate owned................................................ 9,246 10,754 10,360
Accrued interest and other assets...................................... 72,630 71,417 68,187
- -----------------------------------------------------------------------------------------------------------------------
Total.................................................................. $4,713,524 $4,202,195 $3,837,969
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity:
Deposits............................................................... $3,561,923 $3,204,198 $2,935,768
FHLB short-term borrowings............................................. 580,000 465,000 420,000
Other short-term borrowings............................................ 134,918 132,256 106,418
Subordinated debt...................................................... 7,760 17,121 17,410
Other long-term debt................................................... 24,605 29,142 24,070
Other liabilities...................................................... 74,401 65,014 74,265
- -----------------------------------------------------------------------------------------------------------------------
Total liabilities...................................................... 4,383,607 3,912,731 3,577,931
- -----------------------------------------------------------------------------------------------------------------------
Shareholders' equity:
Preference Stock $2.50 par value; 1,000,000 shares
authorized, none issued............................................
Common Stock, $2.50 par value; 44,000,000 shares
authorized, 32,593,460, 31,039,376 and 29,367,402 shares issued
and outstanding at September 30, 1996, December 31, 1995 and
September 30, 1995, respectively*................................... 81,484 77,598 73,419
Additional paid in capital*.......................................... 131,671 120,635 101,815
Retained earnings.................................................... 118,465 90,886 84,677
Unearned compensation................................................ (699) (822)
Unrealized losses on securites available for sale, net of taxes...... (1,004) 1,167 127
- -----------------------------------------------------------------------------------------------------------------------
Total shareholders' equity............................................. 329,917 289,464 260,038
- -----------------------------------------------------------------------------------------------------------------------
Total.................................................................. $4,713,524 $4,202,195 $3,837,969
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: Restated financial results above reflect the July 3, 1996 mergers of
Colonial BancGroup with Commercial Bancorp of Georgia, Inc. and Southern
Banking Corporation. These mergers were accounted for as poolings of
interests and the financial results restated accordingly.
*Restated to reflect the impact of a two-for-one stock split in the form of a
100% stock dividend paid February 11, 1997.
See Notes to the Unaudited Condensed Consolidated Financial Statements
<PAGE> 113
<TABLE>
<CAPTION>
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES Nine Months Ended Three Months Ended
CONDENSED CONSOLIDATED STATEMENT OF INCOME (Unaudited) September 30, September 30, 1996
(Dollars in thousands, except per share amounts) -------------------------- -------------------------
1996 1995 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
(Restated) (Restated)
<S> <C> <C> <C> <C>
Interest Income:
Interest and fees on loans.................... $232,187 $183,488 $81,402 $66,767
Interest on investments....................... 23,096 21,761 7,919 7,532
Other interest income......................... 1,780 1,634 286 718
- ------------------------------------------------------------------------------------------------------------------------
Total interest income......................... 257,063 206,883 89,607 75,017
- ------------------------------------------------------------------------------------------------------------------------
Interest Expense:
Interest on deposits.......................... 102,049 80,694 $35,503 $29,831
Interest on short-term borrowings............. 28,038 20,992 9,745 8,335
Interest on long-term debt.................... 1,948 2,889 671 848
- ------------------------------------------------------------------------------------------------------------------------
Total interest expense........................ 132,035 104,575 45,919 39,014
- ------------------------------------------------------------------------------------------------------------------------
Net Interest Income Before Provision for
Possible Loan Losses........................ 125,028 102,308 43,688 36,003
Provision for possible loan losses............ 6,023 4,155 2,555 1,433
- ------------------------------------------------------------------------------------------------------------------------
Net Interest Income After Provision for
Possible Loan Losses........................ 119,005 98,153 41,133 34,570
- ------------------------------------------------------------------------------------------------------------------------
Noninterest Income:
Mortgage servicing and origination fees....... 21,105 17,302 7,242 6,151
Service charges on deposit accounts........... 14,223 11,946 4,861 4,107
Other charges, fees and commissions........... 3,335 2,914 1,103 1,005
Securities gains, net......................... 111 (26) (1) 6
Other income.................................. 11,080 7,155 3,409 2,371
- ------------------------------------------------------------------------------------------------------------------------
Total noninterest income...................... 49,854 39,291 16,614 13,640
- ------------------------------------------------------------------------------------------------------------------------
Noninterest Expense:
Salaries and employee benefits................ 41,165 35,164 13,828 12,014
Occupancy expense, net........................ 8,848 7,765 3,001 2,684
Furniture and equipment expenses.............. 8,346 6,859 2,778 2,341
Amortization of mortgage servicing rights..... 8,954 5,950 3,238 2,217
Amortization of intangible assets............. 1,513 1,084 523 374
SAIF special assessment....................... 3,817 3,817
Other expense................................. 35,216 30,227 11,522 10,413
- ------------------------------------------------------------------------------------------------------------------------
Total noninterest expense..................... 107,859 87,049 38,707 30,043
- ------------------------------------------------------------------------------------------------------------------------
Income before income taxes 61,000 50,395 19,040 18,167
Applicable income taxes....................... 21,650 17,963 6,740 6,502
- ------------------------------------------------------------------------------------------------------------------------
Net Income.................................... $39,350 $32,432 $12,300 $11,665
- ------------------------------------------------------------------------------------------------------------------------
Earnings per share:
Primary*..................................... $1.20 $1.09 $ 0.37 $0.39
Fully diluted*............................... 1.19 1.06 0.37 0.38
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: Restated financial results above reflect the July 3, 1996 mergers of
Colonial BancGroup with Commercial Bancorp of Georgia, Inc. and Southern
Banking Corporation. These mergers were accounted for as poolings of
interests and the financial results restated accordingly.
*Restated to reflect the impact of a two-for-one stock split in the form of a
100% stock dividend paid February 11, 1997.
See Notes to the Unaudited Condensed Consolidated Financial Statements
<PAGE> 114
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Cash Flow
(Unaudited)(In Thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1996 1995
-------- --------
<S> <C> <C>
Net cash used in operating activities ($3,729) ($36,819)
-------- --------
Cash flows from investing activities:
Proceeds from maturities of securities available
for sale 57,428 10,937
Proceeds from sales of securities available for sale 3,425 25
Purchase of securities available for sale (44,654) (32,060)
Proceeds from maturities of investment securities 108,971 71,040
Purchase of investment securities (131,809) (52,332)
Net decrease in short-term securities 10,000 -
Net increase in loans (432,816) (472,754)
Cash received in bank acquisitions 8,471 5,118
Capital expenditures (15,970) (6,384)
Proceeds from sale of other real estate owned 5,564 6,880
Other, net 30 146
-------- --------
Net cash used in investing activities (431,360) (469,384)
-------- --------
Cash flows from financing activities:
Net increase in demand, savings, and time deposits 286,738 385,219
Net increase in federal funds purchased, repurchase
agreements and other short-term borrowings 110,048 169,861
Proceeds from issuance of long-term debt 5,017 5,841
Repayment of long-term debt (3,664) (54,428)
Proceeds from issuance of common stock 2,733 792
Dividends paid (11,769) (7,620)
-------- --------
Net cash provided by financing activities 389,103 499,665
-------- --------
Net decrease in cash and cash equivalents (45,986) (6,538)
Cash and cash equivalents at beginning of year 201,283 173,635
-------- --------
Cash and cash equivalents at September 30 $155,297 $167,097
-------- --------
Supplemental Disclosure of cash flow information:
Cash paid during the nine months for:
Interest $131,542 $97,076
Income taxes 22,430 19,010
Non-cash investing activities:
Transfer of loans to other real estate $3,309 $4,611
Origination of loans for the sale of other real estate 205 435
Securitization of mortgage loans 87,641
Non-cash financing activities:
Conversion subordinated debentures $9,228
Assets acquired in business combinations 78,505 $55,136
Liabilities assumed in business combinations 75,905 48,928
</TABLE>
See Notes to the Unaudited Condensed Consolidated Financial Statements.
<PAGE> 115
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements
NOTE A - ACCOUNTING POLICIES/RESTATEMENT
The Colonial BancGroup, Inc. ("BancGroup") and its subsidiaries have
not changed their accounting and reporting policies from those stated in the
1995 annual report. These unaudited interim financial statements should be read
in conjunction with the audited financial statements and footnotes included in
BancGroup's 1995 annual report and also the restated audited financial
statements and footnotes included in BancGroup's 8-K/A filing dated October 9,
1996.
In the opinion of BancGroup, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (consisting only of
normal recurring accruals) necessary to present fairly the financial position
as of September 30, 1996 and the results of operations and cash flows for the
interim periods ended September 30, 1996 and 1995. All 1996 interim amounts are
subject to year-end audit, and the results of operations for the interim period
herein are not necessarily indicative of the results of operations to be
expected for the year.
On January 15, 1997, BancGroup's Board of Directors declared a
two-for-one stock split which was effected in the form of a 100 percent stock
dividend distributed February 11, 1997. The stated par value of each share was
not changed from $2.50. Accordingly, all prior period information has been
restated to reflect the reclassification from additional paid in capital to
common stock. Additionally, all share and per share amounts in earnings per
share calculations have been restated to retroactively reflect the stock split.
NOTE B - BUSINESS COMBINATONS
On April 19, 1996 BancGroup's subsidiary Colonial Bank purchased
approximately $31 million in assets and assumed approximately $31 million in
liabilities of the Enterprise, Alabama branch of First Federal Bank of
Tuscaloosa.
On July 3, 1996 BancGroup completed the combination with Commercial
Bancorp of Georgia, Inc. Commercial Bancorp's subsidiary, Commerial Bank of
Georgia ("Commercial"), became a wholly owned subsidiary of BancGroup.
Commercial had assets of approximately $233 million and deposits and other
liabilities of approximately $212 million. Commercial operated seven
full-service offices in the northern area of Atlanta.
On July 3, 1996 BancGroup completed the combination with Southern
Banking Corporation. Southern Banking Corporation's subsidiary Southern Bank of
Central Florida ("Southern")became a wholly-owned subsidiary of BancGroup.
Southern had approximately $232 million in assets and deposits and other
liabilities of approximately $214 million. Southern operated eight branch
locations in the three county central florida area.
<PAGE> 116
Both the Commercial and Southern mergers were accounted for as
poolings of interests and therefore, the prior periods financial results have
been restated.
On July 8, 1996 BancGroup completed the combination with Dothan Federal
Savings Bank ("Dothan Federal"). Dothan Federal had approximately $49 million
in assets and deposits and other liabilities of approximately $45 million.
Dothan Federal had one branch office in Dothan, Alabama. The Dothan combination
was accounted for as a purchase with the issuance of 144,690 shares of BancGroup
Common Stock and payment of $2.6 million in cash to Dothan Federal shareholders.
On July 23, 1996, BancGroup entered into a definitive agreement to
merge Tomoka Bancorp, Inc. ("Tomoka") into Colonial BancGroup. Tomoka's
subsidiary Tomoka State Bank based in Ormond Beach, Florida will be merged into
BancGroup's subsidiary, Colonial Bank, headquartered in Orlando, Florida.
Tomoka has assets of approximately $72 million and deposits of approximately
$63 million. Tomoka currently has four offices located in Ormond Beach, New
Smyrna Beach, Pierson and Port Orange, Florida.
On July 25, 1996, BancGroup entered into a definitive agreement to
merge First Family Financial Corporation ("First Family") into BancGroup.
First Family Financial Corporation's subsidiary First Family Bank, FSB, based
in Eustis, Florida, will become a wholly-owned subsidiary of BancGroup. At
September 30, First Family has assets of approximately $170 million and
deposits of approximately $158 million. First Family has six offices located
in Lake County, Florida which is considered part of the Orlando Metropolitan
area.
On September 12, 1996, BancGroup entered into a definitive
agreement to merge D/W Bankshares, Inc. ("Bankshares") into
BancGroup. Bankshares is a Georgia corporation and is a holding company for
Dalton/Whitfield Bank & Trust located in Dalton, Georgia. Bankshares will be
merged into BancGroup's subsidiary, Colonial Bank, headquartered in
Lawrenceville, Georgia. At September 30, 1996, Bankshares had assets of $130
million, deposits of $116 million and stockholders' equity of $11 million.
BancGroup has signed a definitive agreement dated October 25, 1996, to
merge Jefferson Bancorp, Inc. ("Jefferson") into BancGroup. Jefferson is a
Florida corporation and is a holding company for Jefferson Bank of Florida
located in Miami Beach, Florida. At September 30, 1996, Jefferson had assets of
approximately $459
<PAGE> 117
million, deposits of approximately $386 million and stockholders' equity of
$38 million.
BancGroup has signed a letter of intent dated September 20, 1996, to
merge Fort Brooke Bancorporation ("Fort Brooke") into BancGroup. Fort Brooke is
a Florida corporation and is a holding company for Fort Brooke Bank located in
Tampa, Florida. Fort Brooke will be merged into BancGroup's subsidiary
Colonial Bank, headquartered in Orlando, Florida. At September 30, 1996, Fort
Brooke has assets of approximately $193 million, deposits of approximately
$174 million and stockholders' equity of approximately $16 million.
BancGroup has also entered into a definitive agreement to acquire The
Union Bank in Evergreen, Alabama. At September 30, 1996 the Union Bank
had assets of approximately $53 million and stockholders' equity of $7.8
million.
NOTE C - COMMITMENTS AND CONTINGENCIES
BancGroup's subsidiary banks make loan commitments and incur contingent
liabilities in the normal course of business which are not reflected in the
consolidated statements of condition.
NOTE D - ACCOUNTING CHANGE
BancGroup adopted Statement of Financial Accounting Standards (SFAS)
No. 121, Accounting for the Impairment of Long-Lived Assets to be disposed of
on January 1, 1996. SFAS No. 121 requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or
circumstances indicate that the carrying amount of the assets may not be
recoverable.
SFAS No. 123, Accounting for Stock-Based Compensation defines a fair
value based method of accounting for an employee stock option or similar equity
instrument. However, SFAS 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. BancGroup has elected to continue to measure the compensation cost
for their stock option plans under the provisions of APB Opinion 25.
The adoption of SFAS 121 and 123 did not result in any adjustments to
BancGroup earnings during the nine months ended September 30, 1996.
In June 1996, the Financial Accounting Standards Board issued SFAS No.
125, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, which requires an entity to recognize the
financial and servicing assets it controls and the liabilities it has incurred,
derecognize financial assets when control has been surrendered, and derecognize
liabilities when extinguished.
<PAGE> 118
This statement distinguishes between transfers that are sales and those that
are secured borrowings.
SFAS No. 125 also provides implementation guidance for assessing
isolation of transferred assets and for accounting for transfers of partial
interests, servicing of financial assets, securitizations, transfers of
sales-type and direct financing lease receivables, securities lending
transactions, repurchase agreements, loan syndications and participations, risk
participations in banker's acceptances, factoring arrangements, transfers of
receivables with recourse, and extinguishments of liabilities.
This statement is effective for transfers and servicing of financial
assets and extinguishments of liabilities occurring after December 31, 1996 and
is to be applied prospectively. Management does not believe that the adoption
of SFAS No. 125 will have a material impact on BancGroup's financial
statements.
<PAGE> 119
Part I, Item 2
Management's Discussion and Analysis of
Financial Condition and Results of Operations
<PAGE> 120
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of
Operations
FINANCIAL CONDITION:
Ending balances of total assets, securities, mortgage loans held for
sale, net loans, and deposits changed from December 31, 1995 to September 30,
1996 as follows (in thousands):
<TABLE>
<CAPTION>
Increase (Decrease)
-------------------
Amount %
-------- -----
<S> <C> <C>
Total assets $511,329 12.2%
Securities 87,943 17.6%
Mortgage loans held
for sale 51,378 46.5%
Loans, net of
unearned income 394,984 12.4%
Deposits 357,663 11.2%
</TABLE>
Securities:
Investment securities and securities available for sale have increased
$88 million from December 31, 1995 to September 30, 1996. The increase in
securities primarily consisted of the securitization of $87 million of 1 - 4
family residential mortgages.The remaining change in securities resulted from
the maturities and purchases of securities resulting from normal funding
operations of the Company.
Loans and Mortgage Loans Held for Sale:
The increase in loans, net of unearned income, of $395 million is
primarily from internal loan growth of approximately $423 million at an
annualized rate of 18%. This growth was partially off-set by a decrease of $87
million resulting from the securitization noted in the previous paragraph. The
remaining increase of $59 million resulted from the purchase of assets of the
Enterprise, Alabama branch of First Federal Bank of Tusculoosa and the business
combination with Dothan Federal Savings Bank. Loans increased at a 25% internal
growth rate for the full year in 1995.
Mortgage loans held for sale are funded on a short-term basis (less
than 90 days) while they are being packaged for sale in the secondary market by
Colonial Mortgage Company, a wholly owned subsidiary of Colonial Bank. Loans
originated amounted to approximately $1028.9 million and $638.7 million and
sales thereof amounted to approximately $977.6
<PAGE> 121
million and $558.8 million for the nine months ended September 30, 1996 and
1995, respectively. The increase in originations was primarily due to the
lower interest rates which resulted in refinancings as well as new
originations.
<PAGE> 122
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
Management's Discussion, Continued
Gross loans by category and summary of loan loss experience are shown in the
following schedules.
<TABLE>
<CAPTION>
GROSS LOANS BY CATEGORY September 30, Dec. 31, September 30,
(In thousands) 1996 1995 1995
(Restated) (Restated)
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Commercial, financial, and
agricultural $ 494,018 $ 436,791 $ 418,225
Real estate-commercial 762,827 692,550 663,710
Real estate-construction 347,601 335,645 297,430
Real estate-residential 1,674,391 1,451,338 1,202,366
Installment and consumer 240,869 215,043 217,800
Other 50,875 44,746 48,819
- -----------------------------------------------------------------------------------
Total loans $3,570,581 $3,176,113 $2,848,350
- -----------------------------------------------------------------------------------
Percent of loans in each
category to total loans:
Commercial financial, and
agricultural 13.8% 13.7% 14.7%
Real estate-commercial 21.4% 21.8% 23.3%
Real estate-construction 9.7% 10.6% 10.4%
Real estate-residential 46.9% 45.7% 42.2%
Installment and consumer 6.8% 6.8% 7.7%
Other 1.4% 1.4% 1.7%
- -----------------------------------------------------------------------------------
100.0% 100.0% 100.0%
- -----------------------------------------------------------------------------------
</TABLE>
Loans collateralized by commercial real estate and other commercial
loans increased approximately $70 million and $57 million, respectively during
the first nine months of 1996. Loans secured by residential real estate
increased $223 million for the same period. These loan categories continue to
be a significant source of loan growth and are concentrated in various areas
primarily in Alabama and with regard to residential real estate also in the
metropolitan Atlanta market in Georgia.
<PAGE> 123
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
Management's Discussion, Continued
SUMMARY OF LOAN LOSS EXPERIENCE
<TABLE>
<CAPTION>
Nine Months Year Nine Months
Ended Ended Ended
September 30, Dec. 31, September 30,
(In thousands) 1996 1995 1995
(Restated) (Restated)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Allowance for possible loan
losses - January 1 $41,489 $36,985 $36,985
Charge-offs:
Commercial, financial, and
agricultural 1,948 2,781 1,927
Real estate-commercial 1,084 339 363
Real estate-construction 755 44 32
Real estate-residential 430 372 174
Installment and consumer 2,131 2,603 1,121
Other 35 163 115
- --------------------------------------------------------------------------------
Total charge-offs 6,383 6,302 3,732
- --------------------------------------------------------------------------------
Recoveries:
Commercial, financial, and
agricultural 745 777 379
Real estate-commercial 1,092 26 12
Real estate-construction 1 11 11
Real estate-residential 195 161 149
Installment and consumer 1,202 1,307 980
Other 24 45 30
- --------------------------------------------------------------------------------
Total recoveries 3,259 2,327 1,561
- --------------------------------------------------------------------------------
Net charge-offs 3,124 3,975 2,171
Addition to allowance charged to
operating expense 6,023 7,350 4,155
Allowance added from bank
mergers 710 1,129 313
- --------------------------------------------------------------------------------
Allowance for possible loan
losses-end of period $45,098 $41,489 $39,282
- --------------------------------------------------------------------------------
</TABLE>
<PAGE> 124
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
Management's Discussion, Continued
Asset quality as measured by nonperforming assets remains very good at
0.85% of net loans and other real estate. Nonperforming assets have increased
$4.1 million from December 31, 1995. The increase in nonperforming assets
resulted primarily from a $6.3 million increase in nonaccrural loans and a
$1.5 million decrease in other real estate. The increase in nonaccrual loans
is primarily from three credits in Alabama and one in Georgia. Management
continuously monitors and evaluates recoverability of problem assets and
adjusts loan loss reserves accordingly. The loan loss reserve is 1.26% of loans
at September 30, 1996. The increase in allowance since year end has been due to
provisions in excess of net charge-offs totaling $2.9 million and reserves of
$710,000 from the purchase of Dothan Federal and the Enterprise branch of First
Federal Bank of Tuscaloosa. The provisions in excess of net charge-offs have
been made primarily as a result of loan growth.
Nonperforming assets are summarized below (in thousands):
<TABLE>
<CAPTION>
Sept. 30, Dec. 31, Sept. 30,
1996 1995 1995
(Restated) (Restated)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nonaccrual loans $20,213 $13,840 $ 8,874
Restructured loans 1,006 1,800 1,321
- -------------------------------------------------------------------------------------------
Total nonperforming loans* 21,219 15,640 10,195
Other real estate owned 9,246 10,754 11,103
- -------------------------------------------------------------------------------------------
Total nonperforming assets* $30,465 $26,394 $21,298
- -------------------------------------------------------------------------------------------
Aggregate loans contractually
past due 90 days for which
interest is being accrued $ 3,554 $ 1,381 $ 2,939
Net charge-offs (recoveries)
year-to-date 3,124 3,975 2,171
- -------------------------------------------------------------------------------------------
RATIOS
Period end:
Total nonperforming assets as
a percent of net loans and
other real estate 0.85% 0.83% 0.75%
Allowance as a percent of net
loans 1.26% 1.31% 1.38%
Allowance as a percent of
</TABLE>
<PAGE> 125
<TABLE>
<S> <C> <C> <C>
nonperforming assets 148% 157% 184%
Allowance as a percent of
nonperforming loans 213% 265% 385%
For the period ended:
Net charge-offs
as a percent of average net
loans-(annualized basis) 0.12% 0.15% 0.11%
- -------------------------------------------------------------------------------------------
</TABLE>
* Total does not include loans contractually past due 90 days or more which
are still accruing interest.
<PAGE> 126
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
Management's Discussion, Continued
Management, through its loan officers, internal loan review staff, and
external examinations by regulatory agencies and independent auditors, has
identified approximately $129 million of potential problem loans not included
above. The status of these loans is reviewed at least quarterly by loan
officers and the centralized loan review function and annually by independent
auditors and regulatory agencies. In connection with such reviews collateral
values are updated where considered necessary. If collateral values are judged
insufficient and 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 September 30, 1996 substantially all of these loans
are current with their existing repayment terms. 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 doubts as to the ability of the
borrowers to comply with the loan repayment terms. Of these loans, management
believes it is probable that loans totaling $12 million will not be collected
as scheduled and therefore are considered impaired. 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.
Allocations of the allowance for possible loan losses are made on an
individual loan basis for all identified potential problem loans with a
percentage allocation for the remaining portfolio. The allocations of the total
allowance represent an approximation of the reserves for each category of loans
based on management's evaluation of risk within each loan type.
<PAGE> 127
ALLOCATION OF THE ALLOWANCE FOR POSSIBLE LOAN LOSSES
<TABLE>
<CAPTION>
Sept. 30, Dec. 31, Sept. 30,
(In thousands) 1996 1995 1995
(Restated) (Restated)
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Commercial, financial, and
agricultural $ 8,498 $ 8,020 $ 7,595
Real estate-commercial 14,482 13,662 11,851
Real estate-construction 9,294 7,233 4,405
Real estate-mortgage 8,372 7,256 12,064
Installment and consumer 3,202 3,076 2,056
Other 1,250 2,242 1,311
- ------------------------------------------------------------------------
TOTAL $45,098 $41,489 $39,282
- ------------------------------------------------------------------------
</TABLE>
<PAGE> 128
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
Management's Discussion, Continued
LIQUIDITY:
The maintenance of an adequate liquidity position is a principal
component of BancGroup's asset/liability management strategy. BancGroup's
governing policy provides for daily and longer term monitoring of both sources
and uses of funds to properly maintain the cash position. To assist in funding
a projected 18% annualized growth in loans, BancGroup has credit facilities at
the Federal Home Loan Bank (FHLB). FHLB of Atlanta has established credit
availability in an amount up to $850 million with only $580 million outstanding
at September 30, 1996. This source of credit reduces BancGroup's dependency on
deposits as a source of liquidity resulting in a loan to deposit ratio of 100.2%
at September 30, 1996 and 99.1% at December 31, 1995. In 1995, BancGroup
initiated a brokered Certificate of Deposit (CD) program in conjunction with
Merrill Lynch to offer CD's in increments of $1,000 to $99,000 to out of market
customers at competitive rates ranging from 5.15% to 5.65% maturing in 6 to 24
month periods. At September 30,1996, $163 million is outstanding under this
program. Rate sensitivity is also constantly monitored.
CAPITAL RESOURCES:
Management continuously monitors the capital adequacy and potential
for future growth. The primary measurement for these evaluations for a bank
holding company is its tier one leverage ratio. Tangible capital for BancGroup
at September 30, 1996 consists of $330.9 million of equity less $30.6 million
in intangibles providing a 6.52% leverage ratio at September 30, 1996. The
ratio of shareholders' equity to total assets at September 30, 1996 was 7.00%
as compared to 6.89% at December 31, 1995. Capital levels are sufficient to
support future internally generated growth and fund the quarterly dividend
rates which are currently $0.135 per share.
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 merger or acquisition opportunities.
On January 15, 1997, BancGroup's Board of Directors declared a
two-for-one stock split which was effected in the form of a 100 percent stock
dividend distributed on February 11, 1997. Accordingly, all prior period
information has been restated to reflect the reclassification from additional
paid in capital to common stock. Additionally, all share and per share amounts
in earnings per share calculations have been restated to reflect the stock
split.
<PAGE> 129
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
Management's Discussion, Continued
COMPARISON OF THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995:
SUMMARY:
BancGroup's operating earnings for the quarter increased 27% to
$14,766,000 compared to $11,665,000 in the prior year. Operating EPS increased
19% to $.44 per share compared to $.37 per share for the previous year.
Year-to-date operating earnings per share were $1.26 compared to $1.06 for the
same period in 1995, an 19% increase.
On September 30, 1996 Congress passed a law requiring thrifts and
commercial banks which have acquired thrifts in the past to pay a special
assessment to recapitalize SAIF. As a result of acquiring several thrifts over
the past few years, Colonial has deposits insured by SAIF. This one-time
payment resulted in a pre-tax expense of $3.8 million or $0.07 per share after
tax in September. BancGroup's net income (including a one-time assessment to
recapitalize the Savings Association Insurance Fund (SAIF)) increased $635,000
from $11,665,000 or $0.38 per fully diluted share to $12,300,000 or $0.37 per
fully diluted share for the three months ended September 30, 1995 and 1996,
respectively. BancGroup's net income increased $6,918,000 from $32,432,000 or
$1.06 per fully diluted share to $39,350,000 or $1.19 per share for the nine
months ended September 30, 1995 and 1996, respectively.
The increases in operating earnings are primarily attributable to
increases in interest earning assets and noninterest income partially off-set
by lower interest spreads and increases in loan loss provision and noninterest
expenses.
<PAGE> 130
<TABLE>
<CAPTION>
THE COLONIAL BANCGROUP, INC.
AVERAGE VOLUME AND RATES
(Unaudited) Three Months Ended September 30,
(Dollars in thousands) ------------------------------------------------------------------------
1996 1995
---------------------------------- ----------------------------------
Average Average
Volume Interest Rate Volume Interest Rate
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Loans, net............................................... $3,565,388 $78,899 8.82% $2,758,379 $64,041 9.22%
Mortgage loans held for sale............................. 134,378 2,799 8.33% 159,943 3,112 7.78%
Investment securities and securities available for sale
and other interest-earning assets....................... 541,283 8,476 6.26% 539,994 8,577 6.35%
- ---------------------------------------------------------------------------------- -----------------------
Total interest-earning assets(1)......................... 4,241,049 $90,174 8.48% 3,458,316 $75,730 8.71%
- ---------------------------------------------------------------------------------- -----------------------
Nonearning assets........................................ 393,887 322,852
- ---------------------------------------------------------------------- ----------
Total assets........................................... $4,634,936 $3,781,168
- -----------------------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity:
Interest-bearing deposits................................ $2,856,446 $35,503 4.94% $2,342,577 $29,831 5.05%
Short-term borrowings.................................... 722,613 9,745 5.36% 543,855 8,335 6.00%
Long-term debt........................................... 38,722 671 6.94% 42,931 848 7.89%
- ---------------------------------------------------------------------------------- -----------------------
Total interest-bearing liabilities....................... 3,617,781 $45,919 5.05% 2,929,363 $39,014 5.28%
- ---------------------------------------------------------------------------------- -----------------------
Noninterest-bearing demand deposits...................... 612,831 551,810
Other liabilities........................................ 78,096 46,895
- ---------------------------------------------------------------------- ----------
Total liabilities........................................ 4,308,708 3,528,068
Shareholders' equity..................................... 326,228 253,100
- ---------------------------------------------------------------------- ----------
Total liabilities and shareholders' equity................. $4,634,936 $3,781,168
- -----------------------------------------------------------------------------------------------------------------------------------
Rate differential.......................................... 3.43% 3.43%
Net yield on interest-earning assets....................... $44,255 4.15% $36,716 4.21%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: Restated financial results above reflect the July 3, 1996 mergers of
Colonial BancGroup with Commercial Bancorp of Georgia and Southern
Banking Corporation. These mergers were accounted for as poolings of
interests and the financial results restated accordingly.
(1) 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%. The taxable
equivalent adjustment has given effect to the disallowance of interest
expense deductions, for federal income tax purposes, related to certain
tax-free assets.
Dividends earned and average rates for preferred stocks are reflected on a
tax equivalent basis. Tax equivalent dividends are: actual dividends times
137.7%.
<PAGE> 131
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
ANALYSIS OF INTEREST INCREASES (DECREASES)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
(Dollars in thousands) Three Months Ended September 30
1996 Change from 1995
-----------------------------------
Due to (1)
Total Volume Rate
----------- ------------- ---------
<S> <C> <C> <C>
Interest Income:
Total Loans, Net $ 14,858 $ 90,222 $ (75,364)
Mortgage loans held for sale (313) (5,123) 4,810
Investment securities and securities
available for sale and other interest-earning assets (101) 549 (650)
--------- -------- ---------
Total interest income (2) 14,444 85,648 (71,204)
--------- -------- ---------
Interest Expense:
Interest bearing deposits 5,672 24,013 (18,341)
Short-term borrowings 1,410 22,203 (20,793)
Long-term debt (177) (80) (97)
--------- -------- ---------
Total interest expense 6,905 46,136 (39,231)
--------- -------- ---------
Net interest income $ 7,539 $ 39,512 $ (31,973)
--------- -------- ---------
</TABLE>
(1) Increases (decreases) are attributable to volume changes and rate changes on
the following basis: Volume Change = change in volume times old rate.
Rate Change = change in rate times old volume. The Rate/Volume Change =
change in volume times change in rate, and it is allocated between volume
change and rate change at the ratio that the absolute value of each
component bears to the absolute value of their total.
(2) Interest earned on obligations of state and political subdivisions is
reflected on a tax equivalent basis. Tax equivalent interest earned is:
actual interest earned times 145%. The taxable equivalent adjustment has
given effect to the disallowance of interest, for federal income tax
purposes, related to certain tax-free assets. Dividends earned 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 interest or dividends earned divided by
average volume.
<PAGE> 132
<TABLE>
<CAPTION>
THE COLONIAL BANCGROUP, INC.
AVERAGE VOLUME AND RATES
(Unaudited) Nine Months Ended September 30,
(Dollars in thousands) ------------------------------------------------------------------------
1996 1995
--------------------------------- -----------------------------------
Average Average
Volume Interest Rate Volume Interest Rate
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets
Loans, net..................................... $3,370,975 $224,899 8.91% $2,594,649 $179,174 9.23%
Mortgage loans held for sale................... 139,035 8,176 7.85% 92,852 5,428 7.79%
Investment securities and securities
available for sale
and other interest-earning assets............. 549,153 25,726 6.26% 520,336 24,347 6.24%
- ------------------------------------------------- ---------------------- ----------------------
Total interest-earning assets(1)............... 4,059,163 $258,801 8.51% 3,207,837 $208,949 8.71%
- ------------------------------------------------- ---------------------- ----------------------
Nonearning assets.............................. 388,458 312,367
- ------------------------------------------------- ---------- ----------
Total assets................................. $4,447,621 $3,520,204
- ----------------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity:
Interest-bearing deposits...................... $2,752,166 $102,049 4.95% $2,228,520 $80,694 4.84%
Short-term borrowings.......................... 686,640 28,038 5.45% 454,274 20,992 6.09%
Long-term debt................................. 38,235 1,948 6.81% 49,652 2,889 7.74%
- --------------------------------------------------------------------------- ----------------------
Total interest-bearing liabilities............. 3,477,041 $132,035 5.07% 2,732,446 $104,575 5.12%
- ------------------------------------------------- ---------------------- ----------------------
Noninterest-bearing demand deposits............ 581,747 500,699
Other liabilities.............................. 75,615 44,775
- ------------------------------------------------- ---------- ----------
Total liabilities.............................. 4,134,403 3,277,920
Shareholders' equity........................... 313,218 242,284
- ------------------------------------------------- ---------- ----------
Total liabilities and shareholders' equity....... $4,447,621 $3,520,204
- ----------------------------------------------------------------------------------------------------------------------------
Rate differential................................ 3.44% 3.59%
Net yield on interest-earning assets............. $126,766 4.17% $104,374 4.35%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: Restated financial results above reflect the July 3, 1996 mergers of
Colonial BancGroup with Commercial Bancorp of Georgia and Southern Banking
Corporation. These mergers were accounted for as poolings of interests and
the financial results restated accordingly.
(1) 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%. The taxable
equivalent adjustment has given effect to the disallowance of interest
expense deductions, for federal income tax purposes, related to certain
tax-free assets.
Dividends earned and average rates for preferred stocks are reflected on a
tax equivalent basis. Tax equivalent dividends are: actual dividends times
137.7%.
<PAGE> 133
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
ANALYSIS OF INTEREST INCREASES (DECREASES)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
(Dollars in thousands) Nine Months Ended September 30
1996 Change from 1995
-----------------------------------
Due to (1)
Total Volume Rate
----------- ------------- ---------
<S> <C> <C> <C>
Interest Income:
Total Loans, Net $ 45,725 $ 70,900 $ (25,175)
Mortgage loans held for sale 2,748 2,706 42
Investment securities and securities
available for sale and other interest-earning assets 1,379 1,304 75
--------- -------- ---------
Total interest income (2) 49,852 74,910 (25,058)
--------- -------- ---------
Interest Expense:
Interest bearing deposits 21,355 19,472 1,883
Short-term borrowings 7,046 15,545 (8,499)
Long-term debt (941) (618) (323)
--------- -------- ---------
Total interest expense 27,460 34,399 (6,939)
--------- -------- ---------
Net interest income $ 22,392 $ 40,511 $ (18,119)
--------- -------- ---------
</TABLE>
(1) Increases (decreases) are attributable to volume changes and rate changes on
the following basis: Volume Change = change in volume times old rate. Rate
Change = change in rate times old volume. The Rate/Volume Change = change
in volume times change in rate, and it is allocated between volume change
and rate change at the ratio that the absolute value of each component bears
to the value of their total.
(2) Interest earned on obligations of state and political subdivisions is
reflected on a tax equivalent basis. Tax equivalent interest earned is:
actual interest earned times 145%. The taxable equivalent adjustment has
given effect to the disallowance of interest, for federal income tax
purposes, related to certain tax-free assets. Dividends earned 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 interest or dividends earned divided by average volume.
<PAGE> 134
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES (RESTATED)
NET INTEREST INCOME:
Net interest income on a tax equivalent basis increased $7.6 million
to $44.3 million for the quarter ended September 30, 1996 from $36.7 million
for the quarter ended September 30, 1995. The net yield on interest earning
assets decreased from 4.21% to 4.15% for the three months ended September 30,
1995 and 1996, respectively, while the rate differential remained constant at
3.43% for the three month period ended September 30, 1995 and 1996.
Net interest income on a tax equivalent basis increased $22.4 million
to $126.8 million for the nine months ended September 30, 1996 from $104.4
million for the same period in 1995. The net yield on interest earning assets
decreased from 4.35% to 4.17% for the nine months ended September 30, 1995 and
1996, respectively, while the rate differential decreased from 3.59% to 3.44%
for the nine month period ended September 30, 1995 compared to 1996.
As reflected on the previous tables the increases for the three and
nine months were primarily attributable to loan growth offset by decreasing
rates. The prime rate decreased from 9% in February 1995 to 8.5% in December
1995 to 8.25% in February 1996. The slight increase in deposit rates for the
nine months is primarily due to competition in the market for time deposits as
well as the acquisition of Mt. Vernon Federal Savings Bank, a thrift, in the
fourth quarter of 1995.
LOAN LOSS PROVISION:
The provision for loan losses for the first nine months of 1996 was
$6,023,000 compared to $4,155,000 for the same period in 1995. Asset quality
has remained very good. The current allowance for loan losses provides a 148%
coverage of nonperforming assets compared to 157% at December 31, 1995 and 184%
at September 30, 1995. See management's discussion on loan quality and the
allowance for possible loan losses presented in the Financial Condition section
of this report.
NONINTEREST INCOME:
Noninterest income increased $3.0 million for the three months ended
September 30, 1996 compared to the same period in 1995. The increase is
primarily due to increased servicing related fee income of $1.1 million,
additional fees on deposit accounts of $0.8 million, and $1.0 million in other
income primarily related to the sale of mortgage
<PAGE> 135
loans and other real estate.
The increase in noninterest income for the nine months ended September
30, 1996 compared to the nine months ended September 30, 1995 of $10.6 million
is primarily due to $3.8 million in increased mortgage servicing fees, $2.3
million in additional fees on deposit accounts, and $3.9 million in other
income primarily related to $3.0 million from the sale of mortgage loans.
Colonial Mortgage provides additional sources of noninterest income to
BancGroup through fees from its $10.3 billion servicing portfolio as well as
loan originations from its 8 regional offices. Colonial Mortgage originates
loans in 20 states. Colonial Mortgage had noninterest income of $7.5 million
and $22.1 million for the three and nine months ended September 30, 1996,
respectively compared to $6.4 million and $17.7 million for the three and nine
months ended September 30, 1995, respectively.
OVERHEAD EXPENSES:
BancGroup's net overhead expense (total noninterest expense less
noninterest income excluding security gains) was $22.1 million and $16.4
million for the three months ended September 30,1996 and 1995, respectively and
$58.1 million and $47.8 million for the nine months ended September 30, 1996
and 1995, respectively.
Salary and benefit expense increased $1.8 million and $6.0 million for the
three and nine months ended September 30, 1996, as compared to the same periods
in 1995. The increase for the nine months was due primarily to $1.8 million
from acquisitions and $750,000 from increases in staff by Colonial Mortgage,
attributable to the higher levels of loan originations experienced in the first
nine months of 1996 compared to 1995. The remaining increase is primarily due
to staff additions in the central support areas and normal wage increases.
The increase in other noninterest expenses for the nine months has
been due to increases in merger expenses, advertising, public relations,
donations and expenses related to Colonial Mortgage loan pool pay-offs as well
as increases of other miscellaneous operating expenses. These increases were
somewhat off-set by a reduction in the Bank Insurance Fund (BIF) deposit
assessment from $.23 per $100 in deposits for a portion of 1995 to $0 per $100
in deposits for the nine month period in 1996. Other expense also includes $3.8
million in a one-time SAIF Assessment as discussed in the summary earnings.
<PAGE> 136
PROVISION FOR INCOME TAXES:
BancGroup's provision for income taxes is based on an approximately
35.5% estimated annual effective tax rate for the years 1996 and 1995,
respectively. The provision for income taxes for the nine months ended
September 30, 1996 and 1995 was $21,650,000 and $17,963,000, respectively.
<PAGE> 137
Part II
Other Information
<PAGE> 138
Item 1: Legal Proceedings - See Note C - COMMITMENTS AND
CONTINGENCIES AT PART 1 ITEM 1
Item 2: Changes in Securities - N/A
Item 3: Defaults Upon Senior Securities - N/A
Item 4: Submission of Matters to a Vote of Security Holders
Item 5: Other Events - N/A
Form 8-K/A - Report on Form 8-K/A was filed on October 9, 1996
disclosing the amended and restated financial statements for December
31, 1995.
<PAGE> 139
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
The Colonial BancGroup, Inc.
By: /s/ W. Flake Oakley
---------------------------------------------------
W. Flake Oakley
Chief Financial Officer, Secretary & Treasurer
Date: February 13, 1997
-------------------------------------------
<PAGE> 140
Part I, Item 1
Supplemental Condensed Consolidated Financial Statements
<PAGE> 141
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENT OF CONDITION (Unaudited)
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1996 1995 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets: (Restated)
Cash and due from banks................................................ $ 158,944 $ 137,571
Interest-bearing deposits in banks..................................... 4,977 6,279 4,842
Federal funds sold..................................................... 1,600 36,839 38,650
Securities available for sale.......................................... 406,890 333,495 284,571
Investment securities.................................................. 298,499 284,534 353,415
Mortgage loans held for sale........................................... 162,821 112,203 140,437
Loans, net of unearned income.......................................... 3,877,183 3,442,159 3,080,051
Less:
Allowance for possible loan losses................................... (47,522) (43,923) (41,734)
- -----------------------------------------------------------------------------------------------------------------------
Loans, net............................................................. 3,829,661 3,398,236 3,038,317
Premises and equipment, net............................................ 81,438 72,020 64,612
Excess of cost over tangible and identified intangible
assets acquired, net................................................. 30,949 30,032 22,042
Mortgage servicing rights.............................................. 95,076 80,053 74,489
Other real estate owned................................................ 9,789 11,388 15,449
Accrued interest and other assets...................................... 91,355 89,682 86,125
- -----------------------------------------------------------------------------------------------------------------------
Total.................................................................. $5,171,999 $4,635,198 $4,260,520
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity:
Deposits............................................................... $3,947,778 $3,575,485 $3,301,551
FHLB short-term borrowings............................................. 580,000 465,000 420,000
Other short-term borrowings............................................ 163,987 151,681 123,664
Subordinated debt...................................................... 7,760 17,121 17,410
Other long-term debt................................................... 24,605 29,142 24,070
Other liabilities...................................................... 80,501 69,681 78,735
- -----------------------------------------------------------------------------------------------------------------------
Total liabilities...................................................... 4,804,631 4,308,110 3,965,430
- -----------------------------------------------------------------------------------------------------------------------
Shareholders' equity:
Preference Stock $2.50 par value; 1,000,000 shares
authorized, none issued............................................
Common Stock, $2.50 par value; 44,000,000 shares
authorized, 36,315,572, 34,776,222 and 32,920,818 shares issued
and outstanding at September 30, 1996, December 31, 1995 and
September 30, 1995, respectively*................................... 90,788 86,941 82,302
Additional paid in capital*.......................................... 153,597 142,779 122,058
Retained earnings.................................................... 127,996 99,798 93,521
Unearned compensation................................................ (1,358) (1,849)
Unrealized losses on securites available for sale, net of taxes...... (3,655) (581) (2,791)
- -----------------------------------------------------------------------------------------------------------------------
Total shareholders' equity............................................. 367,368 327,088 295,090
- -----------------------------------------------------------------------------------------------------------------------
Total.................................................................. $5,171,999 $4,635,198 $4,260,520
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: Restated financial results above reflect the July 3, 1996 mergers of
Colonial BancGroup with Commercial Bancorp of Georgia, Inc. and Southern
Banking Corporation and the January 3, 1997 merger with Jefferson
Bancorp, Inc. These mergers were accounted for as poolings of interests
and the financial results were restated accordingly.
* Restated to reflect the impact of a two-for-one stock split in the form of a
100% stock dividend paid February 11, 1997.
See Notes to the Unaudited Supplemental Condensed Consolidated Financial
Statements
<PAGE> 142
<TABLE>
<CAPTION>
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENT OF INCOME Nine Months Ended Three Months Ended
(Unaudited) September 30, September 30, 1996
(Dollars in thousands, except per share amounts) -------------------------- -------------------------
1996 1995 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
(Restated)
<S> <C> <C> <C> <C>
Interest Income:
Interest and fees on loans.................... $252,535 $199,832 $88,575 $72,425
Interest on investments....................... 27,803 27,732 9,586 9,641
Other interest income......................... 1,852 1,986 297 883
- ------------------------------------------------------------------------------------------------------------------------
Total interest income......................... 282,190 229,550 98,458 82,949
- ------------------------------------------------------------------------------------------------------------------------
Interest Expense:
Interest on deposits.......................... 112,871 89,746 39,309 33,420
Interest on short-term borrowings............. 28,677 21,767 10,095 8,493
Interest on long-term debt.................... 1,948 2,889 671 848
- ------------------------------------------------------------------------------------------------------------------------
Total interest expense........................ 143,496 114,402 50,075 42,761
- ------------------------------------------------------------------------------------------------------------------------
Net Interest Income Before Provision for
Possible Loan Losses........................ 138,694 115,148 48,383 40,188
Provision for possible loan losses............ 6,118 4,305 2,630 1,433
- ------------------------------------------------------------------------------------------------------------------------
Net Interest Income After Provision for
Possible Loan Losses........................ 132,576 110,843 45,753 38,755
- ------------------------------------------------------------------------------------------------------------------------
Noninterest Income:
Mortgage servicing and origination fees....... 21,105 17,302 7,242 6,151
Service charges on deposit accounts........... 15,237 12,882 5,196 4,410
Other charges, fees and commissions........... 3,335 2,914 1,103 1,005
Securities gains, net......................... 117 298 (1) 6
Other income.................................. 13,368 8,736 3,942 2,869
- ------------------------------------------------------------------------------------------------------------------------
Total noninterest income...................... 53,162 42,132 17.482 14,441
- ------------------------------------------------------------------------------------------------------------------------
Noninterest Expense:
Salaries and employee benefits................ 48,352 41,885 16,082 14,189
Occupancy expense, net........................ 10,964 9,898 3,709 3,411
Furniture and equipment expenses.............. 8,346 6,859 2,778 2,341
Amortization of mortgage servicing rights..... 8,954 5,950 3,238 2,217
Amortization of intangible assets............. 1,513 1,084 523 374
SAIF special assessment....................... 3,817 3,817
Other expense................................. 39,827 34,906 12,990 11,868
- ------------------------------------------------------------------------------------------------------------------------
Total noninterest expense..................... 121,773 100,582 43,137 34,400
- ------------------------------------------------------------------------------------------------------------------------
Income before income taxes 63,965 52,392 20,098 18,796
Applicable income taxes....................... 22,566 18,572 7,054 6,688
- ------------------------------------------------------------------------------------------------------------------------
Net Income.................................... $41,399 $33,820 $13,044 $12,108
- ------------------------------------------------------------------------------------------------------------------------
Earnings per share:
Primary*..................................... $ 1.13 $ 1.01 $ .35 $ .36
Fully diluted*............................... $ 1.11 $ .99 $ .35 $ .36
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: Restated financial results above reflect the July 3, 1996 mergers of
Colonial BancGroup with Commercial Bancorp of Georgia, Inc. and Southern
Banking Corporation and the January 3, 1997 merger with Jefferson Bancorp,
Inc. These mergers were accounted for as poolings of interests and the
financial results were restated accordingly.
* Restated to reflect the impact of a two-for-one stock split in the form of a
100% stock dividend paid February 11, 1997.
See Notes to the Unaudited Supplemental Condensed Consolidated Financial
Statements
<PAGE> 143
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW
(Unaudited)(In Thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1996 1995
-------- --------
(Restated)
<S> <C> <C>
Net cash used in operating activities ($6,887) ($41,642)
-------- --------
Cash flows from investing activities:
Proceeds from maturities of securities available
for sale 61,662 31,601
Proceeds from sales of securities available for sale 28,732 30,146
Purchase of securities available for sale (78,747) (98,435)
Proceeds from maturities of investment securities 109,092 72,546
Purchase of investment securities (131,809) (52,332)
Net decrease in short-term securities 9,400 (2,000)
Net increase in loans (482,045) (503,200)
Cash received in bank acquisitions 11,471 5,118
Capital expenditures (16,340) (7,178)
Proceeds from sale of other real estate owned 5,643 7,304
Other, net 30 146
-------- --------
Net cash used in investing activities (482,911) (516,284)
-------- --------
Cash flows from financing activities:
Net increase in demand, savings, and time deposits 322,973 444,218
Net increase in federal funds purchased, repurchase
agreements and other short-term borrowings 121,288 161,262
Proceeds from issuance of long-term debt 5,017 5,841
Repayment of long-term debt (3,664) (54,428)
Proceeds from issuance of common stock 2,476 894
Dividends paid (13,200) (8,976)
-------- --------
Net cash provided by financing activities 434,890 548,811
-------- --------
Net decrease in cash and cash equivalents (54,908) (9,115)
Cash and cash equivalents at beginning of year 218,829 188,177
-------- --------
Cash and cash equivalents at September 30 $163,921 $179,062
-------- --------
Supplemental Disclosure of cash flow information:
Cash paid during the nine months for:
Interest $142,212 $105,109
Income taxes 23,340 19,415
Non-cash investing activities:
Transfer of loans to other real estate $3,309 $4,611
Origination of loans for the sale of other real estate 205 435
Securitization of mortgage loans 87,641
Non-cash financing activities:
Conversion of subordinated debentures $9,228
Assets acquired in business combinations 78,505 $55,136
Liabilities assumed in business combinations 75,905 48,928
</TABLE>
See Notes to the Unaudited Supplemental Condensed Consolidated Financial
Statements.
<PAGE> 144
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
Notes to the Unaudited Supplemental Condensed Consolidated Financial Statements
NOTE A - ACCOUNTING POLICIES/RESTATEMENT
The Colonial BancGroup, Inc. ("BancGroup") and its subsidiaries have
not changed their accounting and reporting policies from those stated in the
1995 annual report. These unaudited interim supplemental financial statements
should be read in conjunction with the audited financial statements and
footnotes included in BancGroup's 1995 annual report and also the restated
audited financial statements and footnotes included in BancGroup's 8-K/A filing
dated October 9, 1996.
In the opinion of BancGroup, the accompanying unaudited supplemental
condensed consolidated financial statements contain all adjustments (consisting
only of normal recurring accruals) necessary to present fairly the financial
position as of September 30, 1996 and the results of operations and cash flows
for the interim periods ended September 30, 1996 and 1995. All 1996 interim
amounts are subject to year-end audit, and the results of operations for the
interim period herein are not necessarily indicative of the results of
operations to be expected for the year.
On January 15, 1997, BancGroup's Board of Directors declared a
two-for-one stock split which was effected in the form of a 100 percent stock
dividend distributed on February 11, 1997. The stated par value of each share
was not changed from $2.50. Accordingly, all prior period information has been
restated to reflect the reclassification from additional paid in capital to
common stock. Additionally, all share and per share amounts in earnings per
share calculations have been restated to retroactively reflect the stock split.
NOTE B - BUSINESS COMBINATONS
On April 19, 1996 BancGroup's subsidiary Colonial Bank purchased
approximately $31 million in assets and assumed approximately $31 million in
liabilities of the Enterprise, Alabama branch of First Federal Bank of
Tuscaloosa.
On July 3, 1996 BancGroup completed the combination with Commercial
Bancorp of Georgia, Inc. Commercial Bancorp's subsidiary, Commerial Bank of
Georgia ("Commercial"), became a wholly owned subsidiary of BancGroup.
Commercial had assets of approximately $233 million and deposits and other
liabilities of approximately $212 million. Commercial operated seven
full-service offices in the northern area of Atlanta.
On July 3, 1996 BancGroup completed the combination with Southern
Banking Corporation. Southern Banking Corporation's subsidiary Southern Bank of
Central Florida ("Southern")became a wholly-owned subsidiary of BancGroup.
Southern had approximately $232 million in assets and deposits and other
liabilities of approximately $214 million. Southern operated eight branch
locations in the three county central florida area.
On January 3, 1997, BancGroup completed the combination with Jefferson
Bancorp, Inc. Jefferson Bancorp's subsidiary Jefferson Bank of Florida
("Jefferson") became a wholly-owned subsidiary of BancGroup. A total of
3,854,952 shares of BancGroup's Common Stock were issued to Jefferson's
shareholders. At December 31, 1996, Jefferson had assets of $472.7 million,
deposits of $405.8 million and stockholders' equity of $32.3 million. Jefferson
operated nine branch locations in three south Florida counties.
<PAGE> 145
The Commercial, Southern and Jefferson mergers were accounted for as
poolings of interests and therefore, the prior periods' financial results have
been restated.
On July 8, 1996 BancGroup completed the combination with Dothan Federal
Savings Bank ("Dothan Federal"). Dothan Federal had approximately $49 million
in assets and deposits and other liabilities of approximately $45 million.
Dothan Federal had one branch office in Dothan, Alabama. The Dothan combination
was accounted for as a purchase with the issuance of 144,690 shares of BancGroup
Common Stock and payment of $2.6 million in cash to Dothan Federal shareholders.
On January 3, 1997, BancGroup completed the combination with Tomoka
Bancorp, Inc. ("Tomoka"). A total of 661,992 shares of BancGroup's Common
Stock were issued to the shareholders of Tomoka. At December 31, 1996, Tomoka
had assets of approximately $76.7 million, deposits of approximately $68.2
million and stockholders' equity of $6.5 million. Tomoka currently has four
offices located in Ormond Beach, New Smyrna Beach, Pierson and Port Orange,
Florida.
On January 9, 1997, BancGroup completed the combination with First
Family Financial Corporation ("First Family"). First Family's subsidiary First
Family Bank, FSB, based in Eustis, Florida will merge with BancGroup's existing
subsidiary bank in Orlando, Florida, Colonial Bank. The First Family
combination was accounted for as a purchase with the issuance of 330,400 shares
of BancGroup Common Stock and payment of $6.5 million in cash to First Family
shareholders. At December 31, 1996, First Family had assets of $167.3 million,
deposits of $156.7 million and stockholders' equity of $8.7 million. First
Family has six offices located in Lake County, Florida which is considered
part of the Orlando Metropolitan area.
On January 31, 1997, BancGroup completed the combination with D/W
Bankshares, Inc. ("Bankshares"). Bankshares is a Georgia corporation and is a
holding company for Dalton/Whitfield Bank & Trust located in Dalton, Georgia.
Bankshares will be merged into BancGroup's subsidiary, Colonial Bank,
headquartered in Lawrenceville, Georgia. A total of 1,016,548 shares of
BancGroup Common Stock were issued to the shareholders of Bankshares. At
December 31, 1996, Bankshares had assets of $138.7 million, deposits of $124.4
million and stockholders' equity of $11.0 million.
<PAGE> 146
BancGroup has entered into a definitive agreement dated November 18,
1996, to merge Fort Brooke Bancorporation ("Fort Brooke") into BancGroup. Fort
Brooke is a Florida corporation and is a holding company for Fort Brooke Bank
located in Tampa, Florida. Fort Brooke will be merged into BancGroup's
subsidiary Colonial Bank, headquartered in Orlando, Florida. Based on the
market price of BancGroup's Common Stock on February 6, 1997 and assuming
990,553 Fort Brooke shares outstanding, a total of 1,600,124 shares of
BancGroup's Common Stock would be issued to the stockholders of Fort Brooke.
The actual number of shares of BancGroup's Common Stock to be issued will
depend on the market value of such stock at the date of merger subject to a
maximum of 1,950,152 shares and a minimum of 1,600,124 shares to be issued. At
December 31, 1996, Fort Brooke had assets of $208.8 million, deposits of $185.8
million and stockholders' equity of $16.6 million.
BancGroup has also entered into a definitive agreement to acquire The
Union Bank in Evergreen, Alabama. At September 30, 1996 the Union Bank
had assets of approximately $53 million and stockholders' equity of $7.8
million.
NOTE C - COMMITMENTS AND CONTINGENCIES
BancGroup's subsidiary banks make loan commitments and incur contingent
liabilities in the normal course of business which are not reflected in the
consolidated statements of condition.
NOTE D - ACCOUNTING CHANGE
BancGroup adopted Statement of Financial Accounting Standards (SFAS)
No. 121, Accounting for the Impairment of Long-Lived Assets to be disposed of
on January 1, 1996. SFAS No. 121 requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or
circumstances indicate that the carrying amount of the assets may not be
recoverable.
SFAS No. 123, Accounting for Stock-Based Compensation defines a fair
value based method of accounting for an employee stock option or similar equity
instrument. However, SFAS 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. BancGroup has elected to continue to measure the compensation cost
for their stock option plans under the provisions of APB Opinion 25.
The adoption of SFAS 121 and 123 did not result in any adjustments to
BancGroup earnings during the nine months ended September 30, 1996.
In June 1996, the Financial Accounting Standards Board issued SFAS No.
125, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, which requires an entity to recognize the
financial and servicing assets it controls and the liabilities it has incurred,
derecognize financial assets when control has been surrendered, and derecognize
liabilities when extinguished.
<PAGE> 147
This statement distinguishes between transfers that are sales and those that
are secured borrowings.
SFAS No. 125 also provides implementation guidance for assessing
isolation of transferred assets and for accounting for transfers of partial
interests, servicing of financial assets, securitizations, transfers of
sales-type and direct financing lease receivables, securities lending
transactions, repurchase agreements, loan syndications and participations, risk
participations in banker's acceptances, factoring arrangements, transfers of
receivables with recourse, and extinguishments of liabilities.
This statement is effective for transfers and servicing of financial
assets and extinguishments of liabilities occurring after December 31, 1996 and
is to be applied prospectively. Management does not believe that the adoption
of SFAS No. 125 will have a material impact on BancGroup's financial
statements.
<PAGE> 148
Part I, Item 2
Management's Discussion and Analysis of
Financial Condition and Results of Operations
<PAGE> 149
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of
Operations
FINANCIAL CONDITION:
Ending balances of total assets, securities, mortgage loans held for
sale, net loans, and deposits changed from December 31, 1995 to September 30,
1996 as follows (in thousands):
<TABLE>
<CAPTION>
Increase (Decrease)
-------------------
Amount %
-------- -----
<S> <C> <C>
Total assets $536,801 11.6%
Securities 87,360 14.1%
Mortgage loans held
for sale 50,618 45.1%
Loans, net of
unearned income 435,024 12.6%
Deposits 372,293 10.4%
</TABLE>
Securities:
Investment securities and securities available for sale have increased
$87 million from December 31, 1995 to September 30, 1996. The increase in
securities primarily consisted of the securitization of $87 million of 1 - 4
family residential mortgages.The remaining change in securities resulted from
the maturities and purchases of securities resulting from normal funding
operations of the Company.
Loans and Mortgage Loans Held for Sale:
The increase in loans, net of unearned income, of $435 million is
primarily from internal loan growth of approximately $463 million at an
annualized rate of 18%. This growth was partially off-set by a decrease of $87
million resulting from the securitization noted in the previous paragraph. The
remaining increase of $59 million resulted from the purchase of assets of the
Enterprise, Alabama branch of First Federal Bank of Tusculoosa and the business
combination with Dothan Federal Savings Bank and Jefferson. Loans increased
at a 25% internal growth rate for the full year in 1995.
Mortgage loans held for sale are funded on a short-term basis (less
than 90 days) while they are being packaged for sale in the secondary market by
Colonial Mortgage Company, a wholly owned subsidiary of Colonial Bank. Loans
originated amounted to approximately $1,028.9 million and $638.7 million and
sales thereof amounted to approximately $977.6
<PAGE> 150
million and $558.8 million for the nine months ended September 30, 1996 and
1995, respectively. The increase in originations was primarily due to the
lower interest rates which resulted in refinancings as well as new
originations.
<PAGE> 151
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
Management's Discussion, Continued
Gross loans by category and summary of loan loss experience are shown in the
following schedules.
<TABLE>
<CAPTION>
GROSS LOANS BY CATEGORY September 30, Dec. 31, September 30,
(In thousands) 1996 1995 1995
(Restated)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Commercial, financial, and
agricultural $ 538,927 $ 472,064 $ 469,185
Real estate-commercial 921,998 769,241 764,998
Real estate-construction 381,053 362,558 320,047
Real estate-residential 1,737,004 1,551,525 1,250,301
Installment and consumer 247,615 228,357 227,527
Other 52,792 61,153 50,487
- --------------------------------------------------------------------------------
Total loans $3,879,389 $3,444,898 $3,082,545
- --------------------------------------------------------------------------------
Percent of loans in each
category to total loans:
Commercial financial, and
agricultural 13.9% 13.7% 15.2%
Real estate-commercial 23.8% 22.3% 24.8%
Real estate-construction 9.8% 10.5% 10.4%
Real estate-residential 44.8% 45.0% 40.6%
Installment and consumer 6.4% 6.6% 7.4%
Other 1.3% 1.9% 1.6%
- --------------------------------------------------------------------------------
100.0% 100.0% 100.0%
- --------------------------------------------------------------------------------
</TABLE>
Loans collateralized by commercial real estate and other commercial
loans increased approximately $153 million and $67 million, respectively during
the first nine months of 1996. Loans collateralized by residential real estate
increased approximately $185 million for the same period. These loan categories
continue to be a significant source of loan growth and are concentrated in
various areas primarily in Alabama and with regard to residential real estate
also in the metropolitan Atlanta market in Georgia.
<PAGE> 152
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
Management's Discussion, Continued
SUMMARY OF LOAN LOSS EXPERIENCE
<TABLE>
<CAPTION>
Nine Months Year Nine Months
Ended Ended Ended
September 30, Dec. 31, September 30,
(In thousands) 1996 1995 1995
(Restated)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Allowance for possible loan
losses - January 1 $43,923 $40,137 $40,137
Charge-offs:
Commercial, financial, and
agricultural 2,013 3,100 2,246
Real estate-commercial 1,084 1,165 990
Real estate-construction 755 44 32
Real estate-residential 479 372 319
Installment and consumer 2,136 2,622 1,130
Other 35 163 125
- --------------------------------------------------------------------------------
Total charge-offs 6,502 7,466 4,842
- --------------------------------------------------------------------------------
Recoveries:
Commercial, financial, and
agricultural 869 1,051 636
Real estate-commercial 1,092 48 12
Real estate-construction 1 11 11
Real estate-residential 199 161 152
Installment and consumer 1,208 1,307 980
Other 24 45 30
- --------------------------------------------------------------------------------
Total recoveries 3,393 2,623 1,821
- --------------------------------------------------------------------------------
Net charge-offs 3,109 4,843 3,021
Addition to allowance charged to
operating expense 6,118 7,500 4,305
Allowance added from bank
mergers 590 1,129 313
- --------------------------------------------------------------------------------
Allowance for possible loan
losses-end of period $47,522 $43,923 $41,734
- --------------------------------------------------------------------------------
</TABLE>
<PAGE> 153
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
Management's Discussion, Continued
Asset quality as measured by nonperforming assets remains very good at
0.82% of net loans and other real estate. Nonperforming assets have increased
approximately $3.5 million from December 31, 1995. The increase in
nonperforming assets resulted primarily from a $5.9 million increase in
nonaccrual loans offset by and a $1.6 million decrease in other real estate.
The increase in nonaccrual loans is primarily from three credits in Alabama and
one in Georgia. Management continuously monitors and evaluates recoverability
of problem assets and adjusts loan loss reserves accordingly. The loan loss
reserve is 1.23% of loans at September 30, 1996. The increase in allowance
since year end has been due to provisions in excess of net charge-offs
totaling $3.0 million and reserves of $710,000 from the purchase of Dothan
Federal and the Enterprise branch of First Federal Bank of Tuscaloosa. These
increases were somewhat offset by a $120,000 decrease of reserves resulting from
the sale of a subsidiary bank by Jefferson prior to merger into BancGroup.
The provisions in excess of net charge-offs have been made primarily as a
result of loan growth.
Nonperforming assets are summarized below (in thousands):
<TABLE>
<CAPTION>
Sept. 30, Dec. 31, Sept. 30,
1996 1995 1995
(Restated)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nonaccrual loans $21,222 $15,360 $11,527
Restructured loans 1,006 1,800 1,321
- -------------------------------------------------------------------------------------------
Total nonperforming loans* 22,228 17,160 12,848
Other real estate owned 9,789 11,388 16,192
- -------------------------------------------------------------------------------------------
Total nonperforming assets* $32,017 $28,548 $29,040
- -------------------------------------------------------------------------------------------
Aggregate loans contractually
past due 90 days for which
interest is being accrued $ 5,432 $ 2,233 $ 3,596
Net charge-offs (recoveries)
year-to-date 3,109 4,843 3,021
- -------------------------------------------------------------------------------------------
RATIOS
Period end:
Total nonperforming assets as
a percent of net loans and
other real estate 0.82% 0.83% 0.94%
Allowance as a percent of net
loans 1.23% 1.28% 1.35%
Allowance as a percent of
</TABLE>
<PAGE> 154
<TABLE>
<S> <C> <C> <C>
nonperforming assets 148% 154% 144%
Allowance as a percent of
nonperforming loans 214% 256% 325%
For the period ended:
Net charge-offs
as a percent of average net
loans-(annualized basis) 0.11% 0.17% 0.14%
- -------------------------------------------------------------------------------------------
</TABLE>
* Total does not include loans contractually past due 90 days or more which
are still accruing interest.
<PAGE> 155
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
Management's Discussion, Continued
Management, through its loan officers, internal loan review staff, and
external examinations by regulatory agencies and independent auditors, has
identified approximately $131 million of potential problem loans not included
above. The status of these loans is reviewed at least quarterly by loan
officers and the centralized loan review function and annually by independent
auditors and regulatory agencies. In connection with such reviews collateral
values are updated where considered necessary. If collateral values are judged
insufficient and 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 September 30, 1996 substantially all of these loans
are current with their existing repayment terms. 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 doubts as to the ability of the
borrowers to comply with the loan repayment terms. Of these loans, management
believes it is probable that loans totaling $12 million will not be collected
as scheduled and therefore are considered impaired. 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.
Allocations of the allowance for possible loan losses are made on an
individual loan basis for all identified potential problem loans with a
percentage allocation for the remaining portfolio. The allocations of the total
allowance represent an approximation of the reserves for each category of loans
based on management's evaluation of risk within each loan type.
<PAGE> 156
ALLOCATION OF THE ALLOWANCE FOR POSSIBLE LOAN LOSSES
<TABLE>
<CAPTION>
Sept. 30, Dec. 31, Sept. 30,
(In thousands) 1996 1995 1995
(Restated)
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Commercial, financial, and
agricultural $ 8,850 $ 9,142 $ 8,129
Real estate-commercial 15,731 14,062 12,911
Real estate-construction 9,557 7,333 4,642
Real estate-mortgage 8,863 7,256 12,566
Installment and consumer 3,255 3,326 2,158
Other 1,266 2,804 1,328
- ------------------------------------------------------------------------
TOTAL $47,522 $43,923 $41,734
- ------------------------------------------------------------------------
</TABLE>
<PAGE> 157
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
Management's Discussion, Continued
LIQUIDITY:
The maintenance of an adequate liquidity position is a principal
component of BancGroup's asset/liability management strategy. BancGroup's
governing policy provides for daily and longer term monitoring of both sources
and uses of funds to properly maintain the cash position. To assist in funding
a projected 18% annualized growth in loans, BancGroup has credit facilities at
the Federal Home Loan Bank (FHLB). FHLB of Atlanta has established credit
availability in an amount up to $850 million with only $580 million outstanding
at September 30, 1996. This source of credit reduces BancGroup's dependency on
deposits as a source of liquidity resulting in a loan to deposit ratio of 98.2%
at September 30, 1996 and 96.3% at December 31, 1995. In 1995, BancGroup
initiated a brokered Certificate of Deposit (CD) program in conjunction with
Merrill Lynch to offer CD's in increments of $1,000 to $99,000 to out of market
customers at competitive rates ranging from 5.15% to 5.65% maturing in 6 to 24
month periods. At September 30,1996, $163 million is outstanding under this
program. Rate sensitivity is also constantly monitored.
CAPITAL RESOURCES:
Management continuously monitors the capital adequacy and potential
for future growth. The primary measurement for these evaluations for a bank
holding company is its tier one leverage ratio. Tangible capital for BancGroup
at September 30, 1996 consists of $371.0 million of equity less $30.9 million
in intangibles providing a 6.72% leverage ratio at September 30, 1996. The
ratio of shareholders' equity to total assets at September 30, 1996 and
December 31, 1995 was 7.10% and 7.06%, respectively. Capital levels are
sufficient to support future internally generated growth and fund the quarterly
dividend rates which are currently $0.135 per share.
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 and merger or acquisition opportunities.
On January 15, 1997, BancGroup's Board of Directors declared a
two-for-one stock split which was effected in the form of a 100 percent stock
dividend distributed on February 11, 1997. Accordingly, all prior period
information has been restated to reflect the reclassification from additional
paid in capital to common stock. Addditionally, all share and per share
amounts in earnings per share calculations have been restated to reflect the
stock split.
<PAGE> 158
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
Management's Discussion, Continued
COMPARISON OF THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995:
SUMMARY:
BancGroup's earnings before the SAIF assessment for the quarter
increased 28% to $15,510,000 compared to $12,108,000 in the prior
year. EPS (excluding the SAIF assessment) increased 8% to $.41 per share
compared to $.36 per share for the previous year. Year-to-date earnings per
share before the SAIF assessment were $1.18 compared to $.99 for the same
period in 1995, a 19% increase.
On September 30, 1996 Congress passed a law requiring thrifts and
commercial banks which have acquired thrifts in the past to pay a special
assessment to recapitalize SAIF. As a result of acquiring several thrifts over
the past few years, Colonial has deposits insured by SAIF. This one-time
payment resulted in a pre-tax expense of $3.8 million or $0.07 per share after
tax in September. BancGroup's net income (including a one-time assessment to
recapitalize the Savings Association Insurance Fund (SAIF)) increased $936,000
from $12,108,000 or $.38 per fully diluted share to $13,044,000 or $.35 per
fully diluted share for the three months ended September 30, 1995 and 1996,
respectively. BancGroup's net income increased $7,579,000 from $33,820,000 or
$.99 per fully diluted share to $41,399,000 or $1.11 per share for the nine
months ended September 30, 1995 and 1996, respectively.
The increases in operating earnings are primarily attributable to
increases in interest earning assets and noninterest income partially off-set
by lower interest spreads and increases in loan loss provision and noninterest
expenses.
<PAGE> 159
<TABLE>
<CAPTION>
THE COLONIAL BANCGROUP, INC.
AVERAGE VOLUME AND RATES
(Unaudited) Three Months Ended September 30,
(Dollars in thousands) ------------------------------------------------------------------------
1996 1995
---------------------------------- ----------------------------------
Average Average
Volume Interest Rate Volume Interest Rate
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Loans, net............................................... $3,865,845 $86,363 8.94% $2,989,873 $69,571 9.31%
Mortgage loans held for sale............................. 134,378 2,799 8.33% 159,943 3,112 7.78%
Investment securities and securities available for sale
and other interest-earning assets....................... 663,970 10,186 6.14% 702,655 10,885 6.20%
- ---------------------------------------------------------------------------------- -----------------------
Total interest-earning assets(1)......................... 4,664,193 $99,348 8.52% 3,852,471 $83,568 8.68%
- ---------------------------------------------------------------------------------- -----------------------
Nonearning assets........................................ 425,263 360,939
- ---------------------------------------------------------------------- ----------
Total assets........................................... $5,089,456 $4,213,410
- -----------------------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity:
Interest-bearing deposits................................ $3,193,942 $39,310 4.92% $2,669,232 $33,420 5.01%
Short-term borrowings.................................... 750,423 10,094 5.38% 562,225 8,493 6.04%
Long-term debt........................................... 38,722 671 6.93% 42,931 848 7.90%
- ---------------------------------------------------------------------------------- -----------------------
Total interest-bearing liabilities....................... 3,983,087 $50,075 5.03% 3,274,388 $42,761 5.22%
- ---------------------------------------------------------------------------------- -----------------------
Noninterest-bearing demand deposits...................... 659,819 600,503
Other liabilities........................................ 83,370 50,748
- ---------------------------------------------------------------------- ----------
Total liabilities........................................ 4,726,276 3,925,639
Shareholders' equity..................................... 363,180 287,771
- ---------------------------------------------------------------------- ----------
Total liabilities and shareholders' equity................. $5,089,456 $4,213,410
- -----------------------------------------------------------------------------------------------------------------------------------
Rate differential.......................................... 3.49% 3.44%
Net yield on interest-earning assets....................... $49,273 4.23% $40,807 4.24%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: Restated financial results above reflect the July 3, 1996 mergers of
Colonial BancGroup with Commercial Bancorp of Georgia, Inc. and Southern
Banking Corporation and the January 3, 1997 merger with Jefferson Bancorp,
Inc. These mergers were accounted for as poolings of interests and the
financial results restated accordingly.
(1) 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%. The taxable
equivalent adjustment has given effect to the disallowance of interest
expense deductions, for federal income tax purposes, related to certain
tax-free assets.
Dividends earned and average rates for preferred stocks are reflected on a
tax equivalent basis. Tax equivalent dividends are: actual dividends times
137.7%.
<PAGE> 160
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
ANALYSIS OF INTEREST INCREASES (DECREASES)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
(Dollars in thousands) Three Months Ended September 30
1996 Change from 1995
-----------------------------------
Due to (1)
Total Volume Rate
----------- ------------- ---------
<S> <C> <C> <C>
Interest Income:
Total Loans, Net $ 16,792 $ 19,441 $ (2,649)
Mortgage loans held for sale (313) (560) 247
Investment securities and securities
available for sale and other interest-earning assets (699) (594) (105)
--------- -------- ---------
Total interest income (2) 15,780 18,287 (2,507)
--------- -------- ---------
Interest Expense:
Interest bearing deposits 5,890 6,447 (557)
Short-term borrowings 1,601 2,380 (779)
Long-term debt (177) (70) (107)
--------- -------- ---------
Total interest expense 7,314 8,757 (1,443)
--------- -------- ---------
Net interest income $ 8,466 $ 9,530 $ (1,064)
--------- -------- ---------
</TABLE>
(1) Increases (decreases) are attributable to volume changes and rate changes on
the following basis: Volume Change = change in volume times old rate.
Rate Change = change in rate times old volume. The Rate/Volume Change =
change in volume times change in rate, and it is allocated between volume
change and rate change at the ratio that the absolute value of each
component bears to the absolute value of their total.
(2) Interest earned on obligations of state and political subdivisions is
reflected on a tax equivalent basis. Tax equivalent interest earned is:
actual interest earned times 145%. The taxable equivalent adjustment has
given effect to the disallowance of interest, for federal income tax
purposes, related to certain tax-free assets. Dividends earned 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 interest or dividends earned divided by
average volume.
<PAGE> 161
<TABLE>
<CAPTION>
THE COLONIAL BANCGROUP, INC.
AVERAGE VOLUME AND RATES
(Unaudited) Nine Months Ended September 30,
(Dollars in thousands) ------------------------------------------------------------------------
1996 1995
--------------------------------- -----------------------------------
Average Average
Volume Interest Rate Volume Interest Rate
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets
Loans, net..................................... $3,651,785 $244,873 8.94% $2,813,544 $194,707 9.23%
Mortgage loans held for sale................... 139,035 8,176 7.84% 92,852 5,428 7.79%
Investment securities and securities
available for sale
and other interest-earning assets............. 669,978 30,594 6.09% 673,821 30,799 6.09%
- ------------------------------------------------- ---------------------- ----------------------
Total interest-earning assets(1)............... 4,460,798 $283,643 8.48% 3,580,217 $230,934 8.60%
- ------------------------------------------------- ---------------------- ----------------------
Nonearning assets.............................. 422,806 348,029
- ------------------------------------------------- ---------- ----------
Total assets................................. $4,883,604 $3,928,246
- ----------------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity:
Interest-bearing deposits...................... $3,075,832 $112,871 4.89% $2,525,311 $89,746 4.74%
Short-term borrowings.......................... 705,838 28,677 5.42% 480,909 21,767 6.03%
Long-term debt................................. 38,235 1,948 6.79% 49,652 2,889 7.76%
- --------------------------------------------------------------------------- ----------------------
Total interest-bearing liabilities............. 3,819,905 $143,496 5.01% 3,055,872 $114,402 4.99%
- ------------------------------------------------- ---------------------- ----------------------
Noninterest-bearing demand deposits............ 631,944 549,778
Other liabilities.............................. 80,999 48,101
- ------------------------------------------------- ---------- ----------
Total liabilities.............................. 4,532,848 3,653,751
Shareholders' equity........................... 350,756 274,495
- ------------------------------------------------- ---------- ----------
Total liabilities and shareholders' equity....... $4,883,604 $3,928,246
- ----------------------------------------------------------------------------------------------------------------------------
Rate differential................................ 3.47% 3.61%
Net yield on interest-earning assets............. $140,147 4.19% $116,532 4.34%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: Restated financial results above reflect the July 3, 1996 mergers of
Colonial BancGroup with Commercial Bancorp of Georgia, Inc. and
Southern Banking Corporation and the January 3, 1997 merger with
Jefferson Bancorp, Inc. These mergers were accounted for as poolings of
interests and the financial results restated accordingly.
(1) 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%. The taxable
equivalent adjustment has given effect to the disallowance of interest
expense deductions, for federal income tax purposes, related to certain
tax-free assets.
Dividends earned and average rates for preferred stocks are reflected on a
tax equivalent basis. Tax equivalent dividends are: actual dividends times
137.7%.
<PAGE> 162
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
ANALYSIS OF INTEREST INCREASES (DECREASES)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
(Dollars in thousands) Nine Months Ended September 30
1996 Change from 1995
-----------------------------------
Due to (1)
Total Volume Rate
----------- ------------- ---------
<S> <C> <C> <C>
Interest Income:
Total Loans, Net $ 50,166 $ 55,999 $ (5,833)
Mortgage loans held for sale 2,748 2,716 32
Investment securities and securities
available for sale and other interest-earning assets (205) (176) (29)
--------- -------- ---------
Total interest income (2) 52,709 58,539 (5,830)
--------- -------- ---------
Interest Expense:
Interest bearing deposits 23,125 20,119 3,006
Short-term borrowings 6,910 8,846 (1,936)
Long-term debt (941) (611) (330)
--------- -------- ---------
Total interest expense 29,094 28,354 740
--------- -------- ---------
Net interest income $ 23,615 $ 30,185 $ (6,570)
--------- -------- ---------
</TABLE>
(1) Increases (decreases) are attributable to volume changes and rate changes on
the following basis: Volume Change = change in volume times old rate. Rate
Change = change in rate times old volume. The Rate/Volume Change = change
in volume times change in rate, and it is allocated between volume change
and rate change at the ratio that the absolute value of each component bears
to the value of their total.
(2) Interest earned on obligations of state and political subdivisions is
reflected on a tax equivalent basis. Tax equivalent interest earned is:
actual interest earned times 145%. The taxable equivalent adjustment has
given effect to the disallowance of interest, for federal income tax
purposes, related to certain tax-free assets. Dividends earned 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 interest or dividends earned divided by average volume.
<PAGE> 163
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES (RESTATED)
NET INTEREST INCOME:
Net interest income on a tax equivalent basis increased $8.5 million
to $49.3 million for the quarter ended September 30, 1996 from $40.8 million
for the quarter ended September 30, 1995. The net yield on interest earning
assets decreased from 4.24% to 4.23% for the three months ended September 30,
1995 and 1996, respectively, while the rate differential increased from 3.44%
to 3.49% for the three month period ended September 30, 1996 and 1995,
respectively.
Net interest income on a tax equivalent basis increased $23.6 million
to $140.1 million for the nine months ended September 30, 1996 from $116.5
million for the same period in 1995. The net yield on interest earning assets
decreased from 4.34% to 4.19% for the nine months ended September 30, 1995 and
1996, respectively, while the rate differential decreased from 3.61% to 3.47%
for the nine month period ended September 30, 1995 compared to 1996.
As reflected on the previous tables the increases for the three and
nine months were primarily attributable to loan growth offset by decreasing
rates. The prime rate decreased from 9% in February 1995 to 8.5% in December
1995 to 8.25% in February 1996. The increase in deposit rates for the
nine months is primarily due to competition in the market for time deposits as
well as the acquisition of Mt. Vernon Federal Savings Bank, a thrift, in the
fourth quarter of 1995.
LOAN LOSS PROVISION:
The provision for loan losses for the first nine months of 1996 was
$6,118,000 compared to $4,305,000 for the same period in 1995. Asset quality
has remained very good. The current allowance for loan losses provides a 144%
coverage of nonperforming assets compared to 154% at December 31, 1995 and 170%
at September 30, 1995. See management's discussion on loan quality and the
allowance for possible loan losses presented in the Financial Condition section
of this report.
NONINTEREST INCOME:
Noninterest income increased $3.0 million for the three months ended
September 30, 1996 compared to the same period in 1995. The increase is
primarily due to increased mortgage servicing related fee income of $1.1
million, additional fees on deposit accounts of $0.8 million, and $1.1 million
in other income primarily related to the sale of mortgage
<PAGE> 164
loans and other real estate.
The increase in noninterest income for the nine months ended September
30, 1996 compared to the nine months ended September 30, 1995 of $11.0 million
is primarily due to $3.8 million in increased mortgage servicing fees, $2.4
million in additional fees on deposit accounts, and $4.6 million in other
income primarily related to $3.0 million from the sale of mortgage loans.
Colonial Mortgage provides additional sources of noninterest income to
BancGroup through fees from its $10.3 billion servicing portfolio as well as
loan originations from its 8 regional offices. Colonial Mortgage originates
loans in 20 states. Colonial Mortgage had noninterest income of $7.2 million
and $21.1 million for the three and nine months ended September 30, 1996,
respectively compared to $6.4 million and $17.7 million for the three and nine
months ended September 30, 1995, respectively.
OVERHEAD EXPENSES:
BancGroup's net overhead expense (total noninterest expense less
noninterest income excluding security gains) was $25.7 million and $20
million for the three months ended September 30,1996 and 1995, respectively and
$68.7 million and $58.7 million for the nine months ended September 30, 1996
and 1995, respectively.
Salary and benefit expense increased $1.9 million and $6.5 million for the
three and nine months ended September 30, 1996, as compared to the same periods
in 1995. The increase for the nine months was due primarily to $1.8 million
from acquisitions and $750,000 from increases in staff by Colonial Mortgage,
attributable to the higher levels of loan originations experienced in the first
nine months of 1996 compared to 1995. The remaining increase is primarily due
to staff additions in the central support areas and normal wage increases.
The increase in other noninterest expenses for the nine months has
been due to increases in merger expenses, advertising, public relations,
donations and expenses related to Colonial Mortgage loan pool pay-offs as well
as increases of other miscellaneous operating expenses. These increases were
somewhat off-set by a reduction in the Bank Insurance Fund (BIF) deposit
assessment from $.23 per $100 in deposits for a portion of 1995 to $0 per $100
in deposits for the nine month period in 1996. Other expense also includes $3.8
million in a one-time SAIF Assessment as discussed in the summary earnings.
<PAGE> 165
PROVISION FOR INCOME TAXES:
BancGroup's provision for income taxes is based on an approximately
35.5% estimated annual effective tax rate for the years 1996 and 1995,
respectively. The provision for income taxes for the nine months ended
September 30, 1996 and 1995 was $22,566,000 and $18,572,000, respectively.
<PAGE> 166
Part II
Other Information
<PAGE> 167
Item 1: Legal Proceedings - See Note C - COMMITMENTS AND
CONTINGENCIES AT PART 1 ITEM 1
Item 2: Changes in Securities - N/A
Item 3: Defaults Upon Senior Securities - N/A
Item 4: Submission of Matters to a Vote of Security Holders
Item 5: Other Events - N/A
Form 8-K/A - Report on Form 8-K/A was filed on October 9, 1996
disclosing the amended and restated financial statements for December
31, 1995.
Exhibit 11 - Computation of Earnings Per Share
Exhibit 23 - Consent of Coopers & Lybrand L.L.P.
Exhibit 27 - Financial Data Schedule (for SEC use only)
<PAGE> 168
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
The Colonial BancGroup, Inc.
By: /s/ W. Flake Oakley
---------------------------------------------------
W. Flake Oakley
Chief Financial Officer, Secretary & Treasurer
Date: February 13, 1997
-------------------------------------------
<PAGE> 1
COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
September 30, 1996
(Unaudited)(In thousands, except per share amounts)
EXHIBIT 11
<TABLE>
<CAPTION>
Primary Fully Diluted
Q-T-D Y-T-D Q-T-D Y-T-D
------- ------- -------- --------
<S> <C> <C> <C> <C>
Net income $13,044 $41,399 $13,044 $41,399
Interest expense on $7,800,000, 7.50%
convertible subordinated debentures 181 545
Tax effect @ 35.40% for the quarter and year to date (64) (193)
------- ------- ------- -------
Net income $13,044 $41,399 $13,161 $41,751
------- ------- ------- -------
Average shares outstanding* 36,273 35,816 36,273 35,816
Effect of stock options* 957 961 957 961
------- ------- ------- -------
Primary average shares outstanding* 37,230 36,777 37,230 36,777
------- ------- ------- -------
Contingent shares:
Addtional effect of stock options* 23 27
$7,760,200/$28.00 563 663
------- -------
Fully diluted average shares outstanding* 37,816 37,467
------- -------
Earnings per share:*
------- ------- ------- -------
Net income $0.35 $1.13 $ .35 $1.11
------- ------- ------- -------
SAIF adjustment, net of income taxes $ 2,466 $ 2,466 $ 2,466 $ 2,466
Income before SAIF adjustment $ 0.42 $ 1.19 $ .41 $ 1.18
------- ------- ------- -------
</TABLE>
* - Restated to reflect the impact of a two-for-one stock split in the form
of a 100% stock dividend paid February 11, 1997.
<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-8 (File No. 333-16481), Form S-3 (File No. 33-5665), and Form S-3 (File
33-62071) of our report dated February 11, 1997 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 11, 1997, 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
February 12, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 158,944
<INT-BEARING-DEPOSITS> 4,977
<FED-FUNDS-SOLD> 1,600
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 406,890
<INVESTMENTS-CARRYING> 298,499
<INVESTMENTS-MARKET> 299,160
<LOANS> 3,877,183
<ALLOWANCE> 47,522
<TOTAL-ASSETS> 5,171,999
<DEPOSITS> 3,947,778
<SHORT-TERM> 743,987
<LIABILITIES-OTHER> 80,501
<LONG-TERM> 32,365
0
0
<COMMON> 90,788
<OTHER-SE> 276,580
<TOTAL-LIABILITIES-AND-EQUITY> 5,171,999
<INTEREST-LOAN> 252,535
<INTEREST-INVEST> 27,803
<INTEREST-OTHER> 1,852
<INTEREST-TOTAL> 282,190
<INTEREST-DEPOSIT> 112,871
<INTEREST-EXPENSE> 30,625
<INTEREST-INCOME-NET> 138,694
<LOAN-LOSSES> 6,118
<SECURITIES-GAINS> 117
<EXPENSE-OTHER> 121,773
<INCOME-PRETAX> 63,965
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 41,399
<EPS-PRIMARY> 1.13
<EPS-DILUTED> 1.11
<YIELD-ACTUAL> 4.19
<LOANS-NON> 21,222
<LOANS-PAST> 5,432
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 128,877
<ALLOWANCE-OPEN> 43,923
<CHARGE-OFFS> 6,502
<RECOVERIES> 3,393
<ALLOWANCE-CLOSE> 47,522
<ALLOWANCE-DOMESTIC> 47,522
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
