<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)
DELAWARE 1-13508 63-0661573
(State of Incorporation) (Commission File No.) (IRS Employer I.D. No.)
ONE COMMERCE STREET, MONTGOMERY, ALABAMA 36104
(Address of Principal Executive Office) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 334-240-5000
================================================================================
<PAGE> 2
ITEM 5. OTHER EVENTS
BancGroup completed a business combination with Jefferson Bancorp, Inc.
(JBC), on January 3, 1997. Also, on January 31, 1997, BancGroup completed a
business combination with D/W Bankshares, Inc. (Bankshares). The combinations
were accounted for as poolings of interests. Accordingly, the accompanying
consolidated selected financial data, management's discussion and analysis and
consolidated financial statements as of December 31, 1996, 1995, and
1994 and for each of the three years in the period ended December 31, 1996 have
been restated to give retroactive effect to the combination with JBC and
Bankshares and include the combined operations of BancGroup, JBC and
Bankshares 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.
EXHIBIT
NO. DESCRIPTION
- ------- -----------
[S] [C] [C]
23 -- Consent of Coopers & Lybrand L.L.P.
27 -- Financial Data Schedule (for SEC use only)
<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: April 15, 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....
</TABLE>
<PAGE> 5
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
For the years ended
December 31, 1996, 1995, 1994, 1993 and 1992
(In thousands, except per share amounts)
1996 1995* 1994* 1993* 1992*
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
Interest income $ 348,978 $ 287,314 $ 211,903 $ 160,829 $ 146,486
Interest expense 179,300 146,960 90,902 66,357 67,389
- ----------------------------------------------------------------------------------------------------------------------------
Net interest income 169,678 140,354 121,001 94,472 79,097
Provision for possible loan losses 9,121 7,350 7,506 8,850 8,956
- ----------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for
possible loan losses 160,557 133,004 113,495 85,622 70,141
Noninterest income 65,982 53,993 47,752 43,445 37,027
Noninterest expense 139,651 122,204 115,677 98,501 85,636
SAIF special assessment(1) 3,817 -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
Income before income taxes 83,071 64,793 45,570 30,566 21,532
Applicable income taxes 29,463 23,240 15,829 9,780 5,742
- ----------------------------------------------------------------------------------------------------------------------------
Income before extraordinary items
and the cumulative effect of a change in
accounting for income taxes 53,608 41,553 29,741 20,786 15,790
Extraordinary items, net of income taxes -- -- -- (463) --
Cumulative effect of a change in
accounting for income taxes -- -- -- 3,650 --
- ----------------------------------------------------------------------------------------------------------------------------
Net income $ 53,608 $ 41,553 $ 29,741 $ 23,973 $ 15,790
============================================================================================================================
Income excluding SAIF special assessment(1) $ 56,074 $ 41,553 $ 29,741 $ 23,973 $ 15,790
============================================================================================================================
EARNINGS PER SHARE
Income excluding SAIF
special assessment:
Primary**(1) $ 1.70 $ 1.32 $ 1.00 $ 0.82 $ 0.72
Fully-diluted**(1) $ 1.67 $ 1.28 $ 0.99 $ 0.80 $ 0.72
Income before extraordinary items
and the cumulative effect of a change in
accounting for income taxes:
Primary** $ 1.62 $ 1.32 $ 1.00 $ 0.82 $ 0.72
Fully-diluted** $ 1.60 $ 1.28 $ 0.99 $ 0.80 $ 0.72
Net income:
Primary** $ 1.62 $ 1.32 $ 1.00 $ 0.95 $ 0.72
Fully-diluted** $ 1.60 $ 1.28 $ 0.99 $ 0.91 $ 0.72
Average shares outstanding:
Primary** 33,062 31,594 29,796 25,226 21,992
Fully-diluted** 33,792 33,334 31,330 28,286 24,614
Cash dividends per common share:
Common** $ 0.54 $ 0.3375 -- -- --
Class A** -- $ 0.1125 $ 0.40 $ 0.355 $ 0.335
Class B** -- $ 0.0625 $ 0.20 $ 0.155 $ 0.135
============================================================================================================================
</TABLE>
* Restated to give retroactive effect to the mergers with Commercial Bancorp
of Georgia, Inc. and Southern Banking Corporation on July 3, 1996.
** Restated to reflect the impact of a two-for-one stock split in the form of a
100% stock dividend paid February 11, 1997.
(1) Legislation approving a one-time special assessment to recapitalize the
Savings Association Insurance Fund ("SAIF") resulted in $3,817,000 in
expense before income taxes and $2,466,000 net of applicable income taxes
in 1996.
18 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
<PAGE> 6
<TABLE>
<CAPTION>
For the years ended
December 31, 1996, 1995, 1994, 1993 and 1992
(In thousands, except per share amounts)
1996 1995* 1994* 1993* 1992*
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF CONDITION DATA
At year-end:
Total assets $ 4,870,332 $ 4,202,194 $ 3,219,082 $ 3,104,410 $ 2,027,455
Loans, net of unearned income 3,680,415 3,175,506 2,352,870 1,963,062 1,330,928
Mortgage loans held for sale 157,433 110,486 60,726 361,496 144,215
Deposits 3,583,669 3,204,260 2,504,461 2,444,418 1,697,648
Long-term debt 37,667 46,263 86,662 57,397 22,979
Shareholders' equity 343,182 289,463 224,018 198,389 123,952
Average balances:
Total assets $ 4,515,895 $ 3,659,140 $ 3,074,619 $ 2,379,628 $ 1,978,313
Interest-earning assets 4,128,570 3,333,887 2,768,705 2,100,674 1,730,373
Loans, net of unearned income 3,436,529 2,708,633 2,138,371 1,494,053 1,273,486
Mortgage loans held for sale 133,804 97,511 131,121 241,683 118,510
Deposits 3,393,519 2,828,864 2,471,657 1,876,026 1,665,417
Shareholders' equity 319,147 250,826 214,543 144,216 117,822
Book value per share at year-end** $ 10.48 $ 9.33 $ 7.81 $ 7.20 $ 5.52
Tangible book value per share at year-end** $ 9.56 $ 8.38 $ 7.17 $ 6.61 $ 5.23
============================================================================================================================
SELECTED RATIOS
Income excluding SAIF
special assessment to:
Average assets(1) 1.24% 1.14% 0.97% 0.87% 0.80%
Average shareholders' equity(1) 17.57 16.57 13.86 14.41 13.40
Income before extraordinary items and the
cumulative effect of a change in accounting
for income taxes to:
Average assets 1.19 1.14 0.97 0.87 0.80
Average shareholders' equity 16.80 16.57 13.86 14.41 13.40
Net income to:
Average assets 1.19 1.14 0.97 1.01 0.80
Average shareholders' equity 16.80 16.57 13.86 16.62 13.40
Efficiency ratio(1) 58.69 62.13 67.65 70.40 72.41
Dividend payout ratio 33.33 34.09 40.00 43.29 46.53
Average equity to average total assets 7.07 6.85 6.98 6.06 5.96
Total nonperforming assets to
net loans, other real estate and repossessions .84 0.83 0.96 1.38 1.47
Net charge-offs to average loans .18 0.15 0.09 0.32 0.44
Allowance for possible loan losses to
total loans (net of unearned income) 1.23 1.31 1.57 1.58 1.55
Allowance for possible loan losses to
nonperforming loans(2) 204% 265% 292% 284% 224%
============================================================================================================================
</TABLE>
* Restated to give retroactive effect to the mergers with Commercial Bancorp
of Georgia, Inc. and Southern Banking Corporation on July 3, 1996.
** Restated to reflect the impact of a two-for-one stock split in the form of a
100% stock dividend paid February 11, 1997.
(1) Legislation approving a one-time special assessment to recapitalize the
Savings Association Insurance Fund ("SAIF") resulted in $3,817,000 in
expense before income taxes and $2,466,000 net of applicable income taxes
in 1996.
(2) Nonperforming loans and nonperforming assets are shown as defined in
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Nonperforming Assets on page 34.
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 19
<PAGE> 7
SELECTED QUARTERLY FINANCIAL DATA
1996-1995
<TABLE>
<CAPTION>
(In thousands, except per share amounts)
1996 1995*
------------------------------------------- ------------------------------------------
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 $91,915 $89,607 $85,327 $82,129 $80,431 $75,017 $69,721 $62,145
Interest expense 47,265 45,919 43,210 42,906 42,385 39,014 35,720 29,841
- ----------------------------------------------------------------------------------------------------------------------------------
Net interest income 44,650 43,688 42,117 39,223 38,046 36,003 34,001 32,304
Provision for loan losses 3,098 2,555 1,898 1,570 3,195 1,433 1,440 1,282
- ----------------------------------------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 41,552 41,133 40,219 37,653 34,851 34,570 32,561 31,022
- ----------------------------------------------------------------------------------------------------------------------------------
Net income $14,258 $12,300 $14,501 $12,549 $ 9,121 $11,665 $11,497 $ 9,270
- ----------------------------------------------------------------------------------------------------------------------------------
Income excluding SAIF
special assessment (1) $14,258 $14,766 $14,501 $12,549 $ 9,121 $11,665 $11,497 $ 9,270
- ----------------------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE:
income excluding SAIF
special assessment:
Primary**(1) $ 0.43 $ 0.44 $ 0.44 $ 0.38 $ 0.28 $ 0.39 $ 0.39 $ 0.26
Fully-diluted**(1) 0.42 0.44 0.43 0.38 0.27 0.38 0.38 0.25
Net income:
Primary** $ 0.43 $ 0.37 $ 0.44 $ 0.38 $ 0.28 $ 0.39 $ 0.39 $ 0.26
Fully-diluted** 0.42 0.37 0.43 0.38 0.27 0.38 0.38 0.25
==================================================================================================================================
</TABLE>
* Restated to give retroactive effect to the mergers with Commercial Bancorp
of Georgia, Inc. and Southern Banking Corporation on July 3, 1996.
** Restated to reflect the impact of a two-for-one stock split in the form of a
100% stock dividend paid on February 11, 1997.
(1) Legislation approving a one-time special assessment to recapitalize the
Savings Association Insurance Fund ("SAIF") resulted in $3,817,000 in
expense before income taxes and $2,466,000 net of applicable income taxes
in 1996.
20 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
Management's Discussion and Analysis of Financial Condition and Results of
Operations is presented on the following pages. The principal purpose of this
review is to provide the user of the attached financial statements and
accompanying footnotes with a more detailed analysis of the financial results
of The Colonial BancGroup, Inc. ("BancGroup"). Among other things, this
discussion provides commentary on BancGroup's history, operating philosophies,
the components of net interest margin and balance sheet strength as measured by
the quality of assets, the composition of the loan portfolio and capital
adequacy.
BACKGROUND
BancGroup (or the "Company") was established in 1981 with one bank and $166
million in assets. Through 35 business combinations including Commercial
Bancorp of Georgia, Inc. ("Commercial")and Southern Banking Corporation
("Southern"), the Company has grown to a $4.9 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 Mt. Vernon Financial Corp. 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 merger and
also moved into Florida with the merger with Southern which is based in
Orlando. BancGroup has also entered into agreements to merge with four
additional banks in Florida, one in Georgia and one in Alabama. All of the
transactions are expected to close in early 1997. BancGroup's expansion in
Georgia and Florida reflects a corporate goal to establish its community
banking concept in the higher growth market areas of the Southeast. More
importantly, BancGroup's operating earnings per share have increased an average
of 23.7% per year since 1992 and in 1996 the Company achieved a 17.57% return
on average equity and a 1.24% return on average assets excluding the one-time
special assessment to recapitalize the Savings Association Insurance Fund
("SAIF").
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 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
the 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 14% during 1996 following a 13% increase in 1995.
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 50 largest mortgage loan servicers in
the country. BancGroup has increased residential mortgage loans 432% from
$318 million at December 31, 1992 to $1.7 billion at December 31, 1996. The
portfolio of mortgage loans has a relatively low credit risk and provides a
source of liquidity by serving as collateral for Federal Home Loan Bank
borrowings. CMC's $10.6 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 Corp., an Atlanta, Georgia based
thrift with $225 million in assets. On July 3, 1996, BancGroup merged with
Commercial, a $233 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. In addition, agreements to merge four other banks
in Florida and one in Georgia into BancGroup will expand on this base and
increase BancGroup's total assets in Florida and Georgia to approximately
$1.2 billion and $625 million, respectively.
- COST CONTROL: An operational and organizational infrastructure established
in prior years has allowed the Company to grow significantly and improve
the efficiency ratio from 72.41% in 1992 to 58.69% in 1996. 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. 1996 was the first
full year that additional income was recognized due to the implementation of
several revenue
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 21
<PAGE> 9
enhancements consisting of 1) repriced service charges and fees, 2) the
automation of fee collection, 3) improved reporting for tracking fee
collection and 4) controlling cost by staffing efficiently in the branches.
- 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 1996 by BancGroup's 16.8% internal growth
in loans of which 2.5% was contributed by CMC. CMC provides asset generating
sources for mortgage loans, as noted, and mortgage servicing rights. CMC
also increased its mortgage servicing rights by 23.5% in 1996.
- ASSET QUALITY: Maintaining high asset quality is at the forefront of the
Company's strategy to allow for consistent earnings growth. BancGroup'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, BancGroup completed the acquisition of First AmFed Corporation,
Huntsville, Alabama. This transaction increased total nonperforming assets
in 1993 by $12.8 million to 1.38% of loans and other real estate. This ratio
was reduced to .84% as of December 31, 1996 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 .18% of
average loans in 1996 and .15% in 1995.
- TECHNOLOGICAL ADVANCES: BancGroup is committed to increasing efficiencies
and providing better customer access to products and services through
effective utilization of technological advances. Some of the steps taken
to achieve this objective include: 1) issuance of the Colonial Check Card, a
debit card allowing customers to make purchases with funds from their
checking account, 2) establishment of telephone banking, giving customers
the capability to pay their bills and transfer funds by phone, 3) creation
of a computer banking service allowing customers to conduct banking business
from their home computers, and 4) expanded use of document imaging for
certain loan and deposit documents. Technology is always changing, and
BancGroup will continue to investigate methods of improving customer
services through product enhancement and the efficiencies that technology
provides.
- 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 calculations 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 1996.
- --------------------------------------------------------------------------------
BUSINESS COMBINATIONS
A principal part of BancGroup's strategy is to merge other financial
institutions into BancGroup 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 business combinations with other
financial institutions. The balances reflected are as of the date of
consummation.
<TABLE>
<CAPTION>
COMPLETED ACQUISITIONS:
(Dollars in thousands)
ACCOUNTING DATE BANCGROUP TOTAL TOTAL TOTAL
FINANCIAL INSTITUTIONS TREATMENT CONSUMMATED SHARES ASSETS LOANS DEPOSITS
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Colonial Mortgage Company (AL) Pooling 02/17/95 4,545,454 $ 71,000 $ 1,675 $ 0
Brundidge Banking Company (AL) Purchase 03/31/95 532,868 56,609 31,577 46,044
Mt. Vernon Financial Corp. (GA) Purchase 10/20/95 1,043,440 217,967 192,167 156,356
Farmers & Merchants Bank (AL) Purchase 11/03/95 513,686 56,050 25,342 45,448
Commercial Bancorp of Georgia, Inc. (GA) Pooling 07/03/96 2,306,460 232,555 145,429 207,641
Southern Banking Corporation (FL) Pooling 07/03/96 2,858,494 232,461 160,864 205,602
Dothan Federal Savings Bank (AL) Purchase 07/08/96 154,690 48,366 36,497 39,931
</TABLE>
22 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
<PAGE> 10
In addition to the combinations completed in 1996, BancGroup had the
following combinations pending. The balances reflected are as of December 31,
1996.
<TABLE>
<CAPTION>
PENDING ACQUISITIONS:
(Dollars in thousands)
ACCOUNTING DATE TOTAL TOTAL TOTAL
FINANCIAL INSTITUTIONS TREATMENT CONSUMMATED ASSETS LOANS DEPOSITS
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Jefferson Bancorp, Inc. (FL) Pooling 01/03/97 $472,700 $319,300 $405,800
Tomoka Bancorp, Inc. (FL) Pooling 01/03/97 76,700 51,600 68,200
First Family Financial Corp. (FL) Purchase 01/09/97 167,300 117,500 156,700
D/W Bankshares, Inc. (GA) Pooling 01/31/97 138,700 71,100 124,500
Ft. Brooke Bancorporation (FL) Pooling Pending 208,800 141,500 185,800
Shamrock Holdings, Inc. (AL) Purchase Pending 54,500 19,300 46,400
First Commerce Banks of Florida, Inc. (FL) Purchase Pending* 105,900 68,200 94,700
Great Southern Bank (FL) Pooling Pending* 119,200 94,400 107,800
</TABLE>
*Letters of intent were signed in February 1997.
The combination with CMC in 1995 was accounted for using a method of
accounting similar to a pooling-of-interests. In addition, on July 3, 1996,
BancGroup completed the mergers with Southern and Commercial. 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 remaining business 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 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 1995
and 1996 cannot reasonably be determined.
The combinations have had an impact on the comparisons of operating
results for 1995 and 1996 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.
In February 1997, BancGroup issued supplemental 1995 financial statements
giving retroactive effect to the merger with Jefferson. 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; thus they do not
include the effect of the Jefferson merger.
COLONIAL MORTGAGE COMPANY
On February 17, 1995, BancGroup completed the acquisition of CMC. This
acquisition represents a major step in achieving several BancGroup strategic
goals. A principal initiative of BancGroup for the past several years has been
to increase fee income through establishment of additional lines of business
that provide natural extensions of existing products or services. CMC in this
regard provides an excellent fit for the following reasons:
FEE INCOME
At December 31, 1996, CMC provided servicing for approximately 132,000
customers with a total outstanding balance of $10.6 billion. The servicing
revenues from this portfolio plus other fee income from CMC provided
approximately 55% of BancGroup's noninterest income in 1996 and 1995.
CONSUMER REAL ESTATE LENDING
Through its wholesale and retail offices, CMC originated over $3.8 billion
in residential real estate loans from 1994 through 1996. 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 32 states through 6
regional offices and services 132,000 customers located in 37 states and the
District of Columbia. 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, and Tallahassee.
CAPITAL UTILIZATION
BancGroup provides a capital base for the expansion of CMC's low cost
servicing operation through bulk purchases of servicing. During 1995 and 1996,
CMC acquired a total of $2.2 in bulk servicing. In addition CMC provides another
source of loans for the Bank's portfolio including ARM loans and equity lines.
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 23
<PAGE> 11
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 $152 million and $121 million
in 1996 and 1995, respectively. These balances represent 6% of the 14% increase
in average noninterest bearing demand deposits from 1995 to 1996. 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 26 years. In addition, Ronnie Wynn has been the President of CMC for 20
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
<TABLE>
<CAPTION>
The major components of BancGroup's net income are:
(In thousands) 1996 1995 1994
- ---------------------------------------------------------------
<S> <C> <C> <C>
Net interest income $ 169,678 $ 140,354 $ 121,001
Provision for possible
loan losses (9,121) (7,350) (7,506)
Noninterest income 65,982 53,993 47,752
Noninterest expense (143,468) (122,204) (115,677)
Pretax income 83,071 64,793 45,570
Taxes (29,463) (23,240) (15,829)
- ---------------------------------------------------------------
Net income 53,608 41,553 29,741
SAIF assessment, net of taxes 2,466 -- --
- ---------------------------------------------------------------
Income excluding SAIF $ 56,074 $ 41,553 $ 29,741
- ---------------------------------------------------------------
</TABLE>
Consistently increasing net income is a primary goal of management.
Operating earnings (income before extraordinary items, accounting changes and
SAIF special assessment) increased 35% in 1996, 40% in 1995 and 43% in 1994. The
most significant factors affecting income for 1996, 1995 and 1994 are
highlighted below and discussed in greater detail in subsequent sections.
- An increase in 1996 of 23.8% in average earning assets. This follows an
increase of 20.4% in 1995.
- An increase of $12.0 million (22%) and $6.2 million (13%) in noninterest
income in 1996 and 1995, respectively.
- Maintenance of high asset quality and reserve coverage ratios. Net
charge-offs were $6.2 million or .18% of average net loans in 1996 and $4.0
million or .15% of average net loans in 1995.
- Loan growth, excluding acquisitions, of 17% in 1996 following an increase
of 24% in 1995.
- An increase in average loans as a percent of average earning assets to
83.2% in 1996 from 81.2% in 1995.
- Noninterest expenses as a percent of average assets were reduced to 3.09%
in 1996 from 3.34% in 1995.
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 4.17% in 1996 compared to 4.28% in 1995 and 4.45%
in 1994. Over this period net interest income on a fully tax equivalent basis
increased to $172.0 million in 1996 from $142.7 million in 1995 and $123.3
million in 1994. The principal factors affecting the Company's yields and net
interest income are discussed in the following paragraphs.
LEVELS OF INTEREST RATES
In 1995 and 1996 rates remained fairly constant resulting in little impact
on interest spreads or margins. Short-term rates increased throughout 1994 and
continued to increase into late 1995 before starting to decline and leveling
off in 1996. For example, the average fed funds rate for overnight bank
borrowings was 5.45% in December 1994, reached 6.00% midyear 1995 before
decreasing to 5.95% in December 1995 and has remained at 5.25% since February
1996. The Company's prime rate increased from 8.5% in December 1994 to 9%
midyear 1995 before declining to 8.5% in December 1995 and to 8.25% in
February 1996 where it remained the rest of the year.
ACQUISITIONS
The thrift acquisitions completed during 1995 and 1996 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.
24 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
<PAGE> 12
INTEREST-EARNING ASSETS
- GROWTH IN EARNING ASSETS
One of the most significant factors in the Company's increase in income
for 1996 has been the 23.8% increase in average interest-earning assets.
This follows a 20.4% increase in 1995. In addition and equally significant,
average net loans increased $728 million (28%) from December 31, 1995 to
December 31, 1996. Earning assets as a percentage of total average assets
also increased from 90.1% in 1994 to 91.1% in 1995 to 91.4% in 1996.
- MORTGAGE LOANS HELD FOR SALE
The level and direction of long-term interest rates has a dramatic
impact on the volume of mortgage loan originations from new construction and
refinancings. Fluctuation in these rates from 1994 to 1996 resulted in a
decline in average mortgage loans held for sale from $131 million in 1994 to
$98 million in 1995 and a subsequent increase to $134 million in 1996.
Mortgage loans held for sale represent single family residential mortgage
loans originated or acquired by CMC then packaged and sold in the secondary
market. CMC incurs gains or losses associated with rate fluctuations. CMC
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.
- LOAN MIX
During 1996 loans increased in all categories. The mix of loans remained
relatively constant. Residential real estate loans continue to be the
largest concentration at 45.9% and 45.7% of total loans at December 31, 1996
and 1995, respectively. These loans are predominantly adjustable rate
mortgages which have a low level of credit risk and accordingly have lower
yields than other loans.
INTEREST-BEARING LIABILITIES
- COST OF FUNDS
The significant loan growth in 1995 and 1996 has been more rapid than
BancGroup's growth in low cost deposits resulting in the funding of a
portion of this growth with higher cost funds. This factor has been most
responsible for the decline in net interest yield from 1995 to 1996. As
discussed under Liquidity and Interest Sensitivity, BancGroup's source of
funds are considered adequate to fund future loan growth.
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 continued in 1996, although rates declined slightly. The
cost of funds averaged 3.78%, 5.18% and 5.08% in 1994, 1995 and 1996,
respectively.
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 25
<PAGE> 13
<TABLE>
<CAPTION>
AVERAGE VOLUME AND RATES
1996 1995 1994
---------------------------- ----------------------------- ---------------------------
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) $3,436,529 $305,353 8.89% $2,708,633 $249,218 9.20% $2,138,371 $176,696 8.26%
Mortgage loans held for sale 133,804 10,577 7.90 97,511 7,301 7.49 131,121 10,313 7.87
Investment securities and
securities available for sale:
Taxable 439,717 27,670 6.29 411,589 24,938 6.06 391,312 20,892 5.34
Nontaxable (2) 46,960 3,565 7.59 43,782 3,382 7.72 39,089 2,978 7.62
Equity securities (3) 29,712 2,096 7.05 30,595 2,323 7.59 36,196 2,032 5.61
- --------------------------------------------------------- --------------------- --------------------
Total investment securities 516,389 33,331 6.45% 485,966 30,643 6.31% 466,597 25,902 5.55%
Federal funds sold and
securities purchased under
resale agreements 36,766 1,791 4.87 37,771 2,211 5.85 25,879 929 3.59
Interest-earning deposits 5,082 217 4.27 4,006 293 7.31 6,737 297 4.41
- --------------------------------------------------------- --------------------- --------------------
Total interest-earning assets 4,128,570 $351,269 8.51% 3,333,887 $289,666 8.69% 2,768,705 $214,137 7.73%
- --------------------------------------------------------- --------------------- --------------------
Allowance for loan losses (44,001) (36,746) (32,713)
Cash and due from banks 134,275 130,406 118,022
Premises and equipment, net 72,641 53,468 50,968
Other assets 224,410 178,125 169,637
- ----------------------------------------------- ---------- ----------
TOTAL ASSETS $4,515,895 $3,659,140 $3,074,619
- ----------------------------------------------- ---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Interest-bearing liabilities:
Interest-bearing demand
deposits $ 573,438 $ 16,279 2.84% $ 542,906 $ 16,843 3.10% $ 594,979 $ 16,126 2.71%
Savings deposits 308,300 10,418 3.38 276,902 10,140 3.66 292,343 8,939 3.06
Time deposits 1,921,978 112,258 5.84 1,492,024 86,929 5.83 1,195,551 51,917 4.34
Short-term borrowings 693,372 37,741 5.44 478,596 29,305 6.12 236,074 10,428 4.42
Long-term debt 35,790 2,604 7.28 48,683 3,743 7.69 83,858 3,461 4.13
- --------------------------------------------------------- --------------------- --------------------
Total interest-bearing liabilities 3,532,878 $179,300 5.08% 2,839,111 $146,960 5.18% 2,402,805 $ 90,871 3.78%
- --------------------------------------------------------- --------------------- --------------------
Noninterest-bearing demand
deposits 589,803 517,032 388,784
Other liabilities 74,067 52,171 68,487
- ----------------------------------------------- ---------- ----------
Total liabilities 4,196,748 3,408,314 2,860,076
Shareholders' equity 319,147 250,826 214,543
- ----------------------------------------------- ---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $4,515,895 $3,659,140 $3,074,619
=================================================================================================================================
RATE DIFFERENTIAL 3.43% 3.51% 3.95%
NET INTEREST INCOME AND
NET YIELD ON INTEREST-
EARNING ASSETS (4) $171,969 4.17% $142,706 4.28% $123,266 4.45%
=================================================================================================================================
</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.
26 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
<PAGE> 14
<TABLE>
<CAPTION>
ANALYSIS OF INTEREST INCREASES (DECREASES)
1996 CHANGE FROM 1995 1995 CHANGE FROM 1994
------------------------------------ -------------------------------------
ATTRIBUTED TO (1) ATTRIBUTED TO (1)
------------------------------------ -------------------------------------
(IN THOUSANDS) AMOUNT VOLUME RATE MIX AMOUNT VOLUME RATE MIX
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income:
Taxable securities $ 2,732 $ 1,704 $ 962 $ 66 $ 4,046 $ 1,083 $ 2,817 $ 146
Nontaxable securities (2) 183 245 (58) (4) 404 358 41 5
Dividends on preferred
stocks (3) (227) (67) (165) 5 291 (314) 716 (111)
- -------------------------------------------------------------------------------------------------------------------------
Total securities 2,688 1,882 739 67 4,741 1,127 3,574 40
Total loans (net of unearned
income) 56,135 66,973 (8,542) (2,296) 72,522 47,121 20,053 5,348
Mortgage loans held for sale 3,276 2,717 407 152 (3,012) (2,644) (495) 127
Federal funds sold and
securities purchased
under resale agreements (420) (59) (371) 10 1,282 427 586 269
Interest-earning deposits (76) 79 (122) (33) (4) (120) 196 (80)
- -------------------------------------------------------------------------------------------------------------------------
Total 61,603 71,592 (7,889) (2,100) 75,529 45,911 23,914 5,704
- -------------------------------------------------------------------------------------------------------------------------
Interest expense:
Interest-bearing demand
deposits (564) 947 (1,431) (80) 717 (1,411) 2,333 (205)
Savings deposits 278 1,150 (783) (89) 1,201 (472) 1,766 (93)
Time deposits 25,329 25,050 216 63 35,012 12,874 17,739 4,399
Short-term borrowings 8,436 13,151 (3,254) (1,461) 18,877 10,713 4,027 4,137
Long-term debt (1,139) (991) (201) 53 282 (1,452) 2,986 (1,252)
- -------------------------------------------------------------------------------------------------------------------------
Total 32,340 39,307 (5,453) (1,514) 56,089 20,252 28,851 6,986
- -------------------------------------------------------------------------------------------------------------------------
Net interest income $29,263 $32,285 $(2,436) $ (586) $19,440 $ 25,659 $ (4,937) $(1,282)
=========================================================================================================================
</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. Mix Change = change in volume
times change in rate.
(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 55% of its noninterest income from mortgage
banking related activities with the remaining 45% 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 1994 through
1996 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
132,000, 118,000 and 83,000 mortgage loans with principal balances of $10.6
billion, $9.1 billion and $6.4 billion on December 31, 1996, 1995 and 1994,
respectively. This servicing portfolio generated servicing fee and late charge
income of approximately $28.1 million, $23.8 million and $18.1 million for the
years ended December 31, 1996, 1995 and 1994, respectively. CMC, through its
wholesale and retail offices, originated $1.5 billion, $1.1 billion and $1.2
billion in residential real estate loans in 1996, 1995, and 1994, respectively.
Noninterest income from deposit accounts is significantly affected by
competitive pricing on these services and the volume of noninterest-bearing
accounts. During 1996 and 1995 average noninterest demand accounts (excluding
CMC custodial deposits) increased 10.6% and 12.8%, respectively. This increase
in volume and increases in service fee rates resulted in an 18% increase in
service charge income in 1996 and a 15% increase in 1995.
Other charges, fees, and commissions increased $503,000 (13%) in 1996 and
$486,000 (14%) in 1995. The increase is primarily from credit card related fees
and official check commissions.
BancGroup, through CMC, enters into offers to extend credit for mortgage
loans to customers and into obligations to
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 27
<PAGE> 15
deliver and sell originated or acquired mortgage loans to permanent investors.
Sales of loans servicing released by CMC resulted in income of $330,000,
$988,000, and $539,000 for 1996, 1995 and 1994, respectively. A majority of the
change in other income from 1995 to 1996 is due primarily to an increase in
the gain on sale of mortgage loans held for sale of $2.6 million as well as
increases in income from safe deposit boxes, ATM transaction fees, check card
fees and income from investment sales. BancGroup has an investment sales
operation (primarily mutual funds and annuities). Fee income generated
from this and other investment service activities totaled $929,000, $649,000
and $990,000 in 1996, 1995 and 1994, respectively.
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 1996 1995
----------------------------------- COMPARED COMPARED
(IN THOUSANDS) 1996 1995 1994 TO 1995 % TO 1994 %
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Noninterest income:
Mortgage servicing $28,067 $23,787 $22,216 $ 4,280 18% $1,571 7%
Service charges on deposit
accounts 19,415 16,517 14,365 2,898 18 2,152 15
Other charges, fees, and
commissions 4,403 3,900 3,414 503 13 486 14
Other income 14,034 9,635 7,597 4,399 46 2,038 27
- ---------------------------------------------------------------------------- ------- ------
Subtotal 65,919 53,839 47,592 12,080 22 6,247 13
Other noninterest income items:
Securities gains, net 139 33 84 106 (51)
Gain (loss) on disposal of other
real estate and repossessions (76) 121 76 (197) 45
- ---------------------------------------------------------------------------- ------- ------
Total noninterest income $65,982 $53,993 $47,752 $11,989 22% $6,241 13%
- ---------------------------------------------------------------------------- ------- ------
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
NONINTEREST EXPENSE
The impact of the acquisitions completed from 1994 through 1996 is reflected
most noticeably in the increase in net interest income, discussed previously,
as well as the 17.4% increase from 1995 to 1996 in noninterest expense as shown
in the schedule following. The decrease in noninterest expense as a percent of
average assets from 3.76% in 1994 to 3.34% in 1995 to 3.09% in 1996 is a direct
result of the increased efficiency generated by this growth. The foundation for
the efficiencies gained in 1996 and 1995 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 $1.9 million or 4% in 1995 and increased
$6.4 million or 13% in 1996. The increase in 1996 is primarily due to increased
staffing levels as a result of acquisitions. In addition to the increase in
expenses related to growth, advertising and public relations expenses have
increased $1,233,000 or 32% and $1,060,000 or 39% in 1996 and 1995,
respectively, in concentrated efforts to expand the Company's customer base and
take advantage of increased market share in certain key markets. Additional
expense was also incurred in the marketing of new products and services such as
the check card, telephone banking and computer banking.
Other expenses in 1996, 1995 and 1994 include approximately $1,400,000,
$1,700,000 and $1,200,000, 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 $5 million
in 1994 to $9 million in 1995 and $12 million in 1996 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. 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 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 was approved in Congress to
recapitalize the SAIF with a special one-time charge of 65.7 basis
28 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
<PAGE> 16
points, after adjusting for certain allowances. This recapitalization allows a
reduction in the current .23% average annual premium rate. The assessment
resulted in a pre-tax charge of $3.8 million in 1996.
A significant number of the computer systems are not programmed to
consider the start of a new century. Some of BancGroup's systems will require
modification to process year 2000 transactions. Management is aware there will
be one-time expenses related to this transition but the amount is not readily
determinable at this time. Identification of the systems affected and the
related costs is an active 1997 project.
<TABLE>
<CAPTION>
INCREASE (DECREASE)
---------------------------------------
YEARS ENDED DECEMBER 31 1996 1995
------------------------------ COMPARED COMPARED
(IN THOUSANDS) 1996 1995 1994 TO 1995 % TO 1994 %
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Noninterest expense:
Salaries and employee benefits $ 55,074 $ 48,668 $ 50,548 $ 6,406 13% $(1,880) (4)%
Net occupancy expense 12,013 10,605 10,688 1,408 13 (83) (1)
Furniture and equipment
expense 11,231 9,540 8,074 1,691 18 1,466 18
Amortization of mortgage
servicing rights 12,522 9,095 6,078 3,427 38 3,017 50
Amortization of intangible assets 2,029 1,525 1,353 504 33 172 13
FDIC assessment 2,231 3,767 5,293 (1,536) (41) (1,526) (29)
SAIF special assessment 3,817 -- -- 3,817 100 -- --
Stationery, printing, and supplies 3,469 3,080 3,084 389 13 (4) --
Postage 2,241 1,901 1,682 340 18 219 13
Telephone 4,284 3,429 2,915 855 25 514 18
Insurance 1,404 1,417 1,690 (13) (1) (273) (16)
Legal fees 2,778 2,232 2,949 546 24 (717) (24)
Advertising and public relations 5,029 3,796 2,736 1,233 32 1,060 39
Other 25,346 23,149 18,587 2,197 9 4,562 25
- --------------------------------------------------------------------------- -------- -------
Total noninterest expense $143,468 $122,204 $115,677 $ 21,264 17% $ 6,527 6%
- --------------------------------------------------------------------------- -------- -------
Noninterest expense to
Average Assets 3.09%* 3.34% 3.76%
- ---------------------------------------------------------------------------
* Excluding one-time SAIF special assessment
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
INCOME TAXES
The provision for income taxes and related items are as follows:
<TABLE>
<CAPTION>
Tax
Provision
-------------------------------
<S> <C>
1996 $29,463,000
1995 23,240,000
1994 15,829,000
</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.
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 adjusted in 1994, 1995 and 1996.
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 29
<PAGE> 17
REVIEW OF FINANCIAL CONDITION
OVERVIEW
Ending balances of selected components of the Company's balance sheet
changed from December 31, 1995 to December 31, 1996 as follows:
<TABLE>
<CAPTION>
(In Thousands) Increase
Amount %
- ------------------------------------------------------------
<S> <C> <C>
Total assets $668,138 15.9
Securities available for sale
and investment securities 83,803 16.8
Mortgage loans held for sale 46,947 42.5
Loans, net of unearned income 504,909 15.9
Deposits 379,409 11.8
- ------------------------------------------------------------
</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
1994 through 1996 have been:
- An increase in residential mortgage loans from 38.2% of total loans at
December 31, 1994 to 45.9% at December 31, 1996. 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 17% in 1996 excluding acquisitions.
- A 14% increase in 1996 in average noninterest bearing demand deposits
substantially from internal growth.
- Maintenance of high asset quality and reserve coverage of nonperforming
assets. Nonperforming assets were .84%, .83% and .96% of related assets at
December 31, 1996, 1995 and 1994. Net charge-offs were .18%, .15% and .09%
of average loans over the same periods. The allowance for possible loan
losses was 1.23% at December 31, 1996, providing 204% coverage of
non-performing loans (nonaccrual and renegotiated).
- Increase in tier one leverage ratios from 6.43% at December 31, 1994 to
6.65% at December 31, 1996.
- An increase in the loan to deposit ratio from 93.9% at December 31, 1994 to
102.7% at December 31, 1996. Federal Home Loan Bank borrowings continue to
be a major source of funding allowing the Company greater funding
flexibility.
- Increase of $47 million in mortgage loans held for sale during 1996.
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. 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 45.9% of total loans. These loans are substantially all
mortgages on single-family, owner occupied properties and therefore have
minimal credit risk. While a portion of these loans were acquired through
acquisitions, the Company has continued to grow this portfolio with a $237
million or 16% increase in these loans in 1996. BancGroup securitized
approximately $88 million of residential mortgage loans during 1996.
Excluding this securitization, residential real estate loans increased $325
million or 22%. 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 concentration is in loans collateralized by commercial
real estate with loan balances of $797,341,000, $692,550,000,
$626,618,000, $514,299,000 and $404,836,000 at December 31, 1996, 1995,
1994, 1993 and 1992, 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 region. The Alabama economy experiences a
generally slow but steady rate of growth, while Georgia and Florida are
experiencing higher rates of growth. For this reason, real estate values in
Alabama have not been inflated due to excessive speculation. Due to
BancGroup's lending areas in Georgia and Florida, real estate values have
not been inflated due to excessive inflation. BancGroup's real estate
related loans continue to perform at acceptable levels.
- BancGroup holds 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 $157,433,000, $110,486,000, and $60,726,000, at
December 31, 1996, 1995, and 1994, respectively. There is minimal credit
risk associated with these loans. The decrease in mortgage loans held for
sale during 1994 and subsequent increases in 1995 and 1996 are directly
related to the fluctuation in long-term interest rates and its related
30 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
<PAGE> 18
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 16.8% in 1996, 24.3% in 1995, 20.3% in 1994,
and 12.1% in 1993, excluding acquisitions.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
GROSS LOANS BY CATEGORY
(In thousands) DECEMBER 31
- ----------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial, financial, and agricultural $ 492,619 $ 436,791 $ 372,104 $ 308,954 $ 274,404
Real estate--commercial 797,341 692,550 626,618 514,299 404,836
Real estate--construction 402,502 335,645 227,645 172,367 131,835
Real estate--residential 1,688,299 1,451,338 900,318 760,176 317,511
Installment and consumer 247,195 215,043 185,272 166,126 158,451
Other 53,152 44,746 42,015 34,996 42,401
- ----------------------------------------------------------------------------------------------------------------
Total loans $ 3,681,108 $ 3,176,113 $ 2,353,972 $ 1,956,918 $ 1,329,438
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
Percent of loans in each category to total loans:
Commercial, financial, and agricultural 13.4% 13.8% 15.8% 15.8% 20.6%
Real estate--commercial 21.7 21.8 26.6 26.3 30.5
Real estate--construction 10.9 10.6 9.7 8.8 9.9
Real estate--residential 45.9 45.7 38.2 38.8 23.9
Installment and consumer 6.7 6.8 7.9 8.5 11.9
Other 1.4 1.3 1.8 1.8 3.2
- ----------------------------------------------------------------------------------------------------------------
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, 1996, approximately 57.2% 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.
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 31
<PAGE> 19
<TABLE>
<CAPTION>
LOAN MATURITY/RATE SENSITIVITY
(In thousands) DECEMBER 31, 1996
- -------------------------------------------------------------------------------------------------------------------
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 $244,537 $ 190,437 $ 57,645 $ 228,681 $ 263,938 $ 167,306 $ 80,776
Real estate--commercial 199,096 438,874 159,371 449,898 347,443 370,795 227,450
Real estate--construction 277,147 102,222 23,133 102,831 299,671 39,335 86,020
Real estate--residential 152,489 225,812 1,309,998 523,322 1,164,977 442,242 1,093,568
Installment and consumer 75,912 158,981 12,302 232,563 14,632 168,360 2,923
Other 12,808 8,213 32,131 38,910 14,242 31,785 8,559
- -------------------------------------------------------------------------------------------------------------------
Total loans $961,989 $1,124,539 $1,594,580 $1,576,205 $2,104,903 $1,219,823 $1,499,296
- -------------------------------------------------------------------------------------------------------------------
</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 1996 the ratio of net charge-offs to average loans increased to .18%
from .15% in 1995. This increase has been impacted by the increase in average
loans and also by an increase of approximately $2.2 million in actual net
charge-offs. The increase in net charge-offs in 1996 is primarily due to the
partial charge-off of seven large credits in different geographic locations. As
a result of the Company's localized lending strategies and early identification
of potential problem loans, BancGroup's net charge-offs have been consistently
low. In addition, the current concentration of loans in residential real estate
loans has had a favorable impact on net charge-offs.
The following schedule 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. 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.
32 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
<PAGE> 20
<TABLE>
<CAPTION>
SUMMARY OF LOAN LOSS EXPERIENCE
(IN THOUSANDS) YEARS ENDED DECEMBER 31
- ---------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for possible loan losses--
January 1 $ 41,490 $ 36,985 $ 30,946 $ 20,598 $ 17,295
Charge-offs:
Commercial, financial, and agricultural 2,602 2,781 2,017 3,179 3,346
Real estate--commercial 1,932 339 1,143 530 771
Real estate--construction 1,774 44 2 957 7
Real estate--residential 617 372 372 569 730
Installment and consumer 3,135 2,603 1,751 1,853 2,871
Other 594 163 168 7 83
- ---------------------------------------------------------------------------------------------------------------
Total charge-offs 10,654 6,302 5,453 7,095 7,808
- ---------------------------------------------------------------------------------------------------------------
Recoveries:
Commercial, financial, and agricultural 888 777 1,686 637 524
Real estate--commercial 1,317 26 202 44 49
Real estate--construction 1 11 12 25 --
Real estate--residential 687 161 77 102 171
Installment and consumer 1,497 1,307 1,465 1,502 1,396
Other 85 46 43 7 15
- ---------------------------------------------------------------------------------------------------------------
Total recoveries 4,475 2,328 3,485 2,317 2,155
- ---------------------------------------------------------------------------------------------------------------
Net charge-offs 6,179 3,974 1,968 4,778 5,653
Addition to allowance charged to
Operating expense 9,121 7,350 7,506 8,850 8,956
Allowance added from bank acquisitions 738 1,129 501 6,276 --
- ---------------------------------------------------------------------------------------------------------------
Allowance for possible loan losses--
December 31 $ 45,170 $ 41,490 $ 36,985 $ 30,946 $ 20,598
- ---------------------------------------------------------------------------------------------------------------
Loans (net of unearned income)
December 31 $3,680,415 $3,175,506 $2,352,870 $1,963,062 $1,330,928
Ratio of ending allowance to ending loans
(net of unearned income) 1.23% 1.31% 1.57% 1.58% 1.55%
Average loans (net of unearned income) $3,436,529 $2,708,633 $2,138,371 $1,494,053 $1,273,486
Ratio of net charge-offs to average loans
(net of unearned income) 0.18% 0.15% 0.09% 0.32% 0.44%
Allowance for loan losses as a percent
of nonperforming loans
(nonaccrual and renegotiated) 204% 265% 292% 284% 224%
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 33
<PAGE> 21
NONPERFORMING ASSETS
BancGroup classifies problem loans into four categories: nonaccrual, past
due, renegotiated and other potential problems. When management determines a
loan no longer meets the criteria for performing loans and collection of
interest appears doubtful, the loan is placed on nonaccrual status. All loans
that are 90 days past due are considered nonaccrual unless they are adequately
collateralized, they are in the process of collection, and there is reasonable
assurance of full collection of principal and interest. BancGroup's policy is
also to charge off installment loans 120 days past due unless they are in the
process of foreclosure and are adequately collateralized. Management closely
monitors all loans which are contractually 90 days past due, renegotiated or
nonaccrual. These loans are summarized as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
NONPERFORMING ASSETS DECEMBER 31
- ------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Aggregate loans for which interest is
not being accrued $21,118 $13,840 $ 9,263 $ 9,472 $ 7,838
Aggregate loans renegotiated to
provide a reduction or deferral
of interest or principal because of
a deterioration in the financial
condition of the borrower 1,002 1,800 3,386 1,425 1,346
- ------------------------------------------------------------------------------------------------------------------
Total nonperforming loans* 22,120 15,640 12,649 10,897 9,184
Other real estate and in-substance foreclosure 8,563 10,592 9,873 16,399 10,382
Repossessions 314 171 81 88 103
- ------------------------------------------------------------------------------------------------------------------
Total nonperforming assets* $30,997 $26,403 $22,603 $27,384 $19,669
- ------------------------------------------------------------------------------------------------------------------
Aggregate loans contractually
past due 90 days for which
interest is being accrued $ 3,805 $ 1,381 $ 2,559 $ 2,218 $ 1,450
Total nonperforming loans as a
percent of net loans 0.60% 0.49% 0.54% 0.56% 0.69%
Total nonperforming assets as a
percent of net loans, other real estate
and repossessions 0.84% 0.83% 0.96% 1.38% 1.47%
Total nonaccrual, renegotiated and
past due loans as a percent of total loans 0.70% 0.54% 0.65% 0.67% 0.80%
Allowance for loan loss as a percent of
nonperforming loans (nonaccrual
and renegotiated) 204% 265% 292% 284% 224%
- ------------------------------------------------------------------------------------------------------------------
* 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%.
Nonaccrual loans at December 31, 1996 were $21.1 million compared to $13.8
million at December 31, 1995. This increase in nonaccrual loans is primarily
due to four large credits in different geographic locations.
Management, through its loan officers, internal loan review staff and
external examinations by regulatory agencies, has identified approximately
$127 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
34 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
<PAGE> 22
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, 1996 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 recognized on nonaccrual loans was $800,000, $605,000,
$414,000, $93,000 and $316,000 in 1996, 1995, 1994, 1993 and 1992,
respectively. Interest income foregone on such loans was approximately
$1,320,000, $905,000, $786,000, $562,000 and $279,000 in 1996, 1995, 1994,
1993 and 1992, 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, 1996. See Notes
1 and 4 to the consolidated financial statements for further discussion.
<TABLE>
<CAPTION>
Carrying
(In thousands) Balance Reserve Value
- -----------------------------------------------------
<S> <C> <C> <C>
Commercial, financial,
and agricultural $2,807 $1,443 $1,364
Real Estate--Commercial 5,706 1,015 4,691
Real Estate--Construction 14,143 3,390 10,753
Real Estate--Residential 5,166 1,420 3,746
Installment and Consumer 977 386 591
- -----------------------------------------------------
Total impaired loans $28,799 $7,654 $21,145
- -----------------------------------------------------
</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 percent
age 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>
ALLOCATION OF THE ALLOWANCE FOR POSSIBLE LOAN LOSSES DECEMBER 31
- --------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at end of period applicable to:
Commercial, financial, and agricultural $ 8,290 $ 8,020 $ 6,999 $ 6,235 $ 5,087
Real estate--commercial 14,330 13,662 12,168 11,112 6,030
Real estate--construction 9,410 7,233 3,636 1,830 2,077
Real estate--residential 8,441 7,256 8,837 7,182 3,906
Installment and consumer 3,406 3,076 2,844 2,754 2,327
Other 1,293 2,243 2,501 1,833 1,171
- --------------------------------------------------------------------------------------------------------------------------
Total $ 45,170 $ 41,490 $ 36,985 $ 30,946 $ 20,598
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 35
<PAGE> 23
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, 1996
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.
- 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. 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 and the 3-5 year range in
1996.
- 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, 1996 or 1995 does not
include any interest-only strips and the amount of unamortized premium on
mortgage backed securities is approximately $410,000. 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 $215 million at December 31, 1995
to $307 million at December 31, 1996. Securitization of residential mortgage
loans represented $88 million of the $92 million increase in 1996. An increase
from $104 million at December 31, 1994 to $215 million at December 31, 1995 was
partially 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) 1996 1995 1994
- ------------------------------------------------------------------
<S> <C> <C> <C>
Investment securities:
U.S. Treasury securities
and obligations
of U.S.government
agencies $237,764 $226,621 $288,554
Obligations of state
and political
subdivisions 37,284 46,337 44,489
Other 752 11,037 29,280
- ------------------------------------------------------------------
Total $275,800 $283,995 $362,323
- ------------------------------------------------------------------
Securities available for sale:
U.S. Treasury securities
and obligations of U.S.
government
agencies $292,743 $199,820 $83,752
Obligations of state
and political
subdivisions 6,812 7,021 101
Other 7,280 7,996 19,829
- ------------------------------------------------------------------
Total $306,835 $214,837 $103,682
- ------------------------------------------------------------------
</TABLE>
At December 31, 1996, 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 $34.3 million.
36 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
<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 $ 52,691 6.16% $113,929 6.31% $ -- -- $ 500 7.25%
Mortgage-backed securities 2,625 6.64 50,991 6.79 1,396 8.16% 15,632 7.78
Obligations of state and
political subdivisions (1) 6,639 7.45 16,423 6.96 12,684 8.32 1,537 8.62
Other (2) 199 6.08 421 7.50 133 7.49 -- --
-------- -------- ------- -------
Total $ 62,154 6.31% $181,764 6.50% $14,213 8.30% $17,669 7.83%
- -------------------------------------------------------------------------------------------------------------------------
Securities available for sale (3):
U.S. Treasury securities
and obligations of U.S.
government agencies $ 86,302 6.08%
Mortgage-backed securities 169,583 6.83
Obligations of state and political
subdivisions (1) 4,416 6.68
Other 7,405 7.46
--------
Total $267,706 6.61%
- -------------------------------------------------------
</TABLE>
(1) The weighted average yields are calculated on the basis of the cost and
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) 1996 1995 1996 1995
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Noninterest-bearing demand deposits $ 594,385 $ 544,805 16.6% 17.0%
Interest-bearing demand deposits 595,024 583,371 16.6 18.2
Savings deposits 359,533 289,932 10.0 9.1
Certificates of deposits less than $100,000 1,379,362 1,194,736 38.5 37.3
Certificates of deposits more than $100,000 390,169 355,153 10.9 11.1
IRAS 218,161 189,532 6.1 5.9
Open time deposits 47,035 46,731 1.3 1.4
- -----------------------------------------------------------------------------------------
Total deposits $3,583,669 $3,204,260 100.0% 100.0%
=========================================================================================
</TABLE>
The growth in deposits and the mix of deposits has been most
significantly impacted in 1995 and 1996 by acquisitions in late 1995 of Mt.
Vernon Financial and in mid 1996 of Dothan Federal both of which were thrifts.
As such, the level of noninterest-bearing demand deposits was less than 3% of
the total deposits acquired with the major portion of acquired deposits in
certificates of deposits. Noninterest-bearing demand deposits have increased
$49.6 million (9%) from December 31, 1995 to December 31, 1996. 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 Company
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 acquisitions 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. This expansion is continuing with additional
acquisitions closing in Florida and Georgia in early 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.
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 37
<PAGE> 25
During 1995 and 1996 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 is
offered in eleven WalMart locations with ten located in Alabama and one in
Tennessee. BancGroup 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, 1996 and 1995,
$138 million and $75 million, respectively of CD's were outstanding under this
program.
- --------------------------------------------------------------------------------
SHORT-TERM BORROWINGS
Short-term borrowings were comprised of the following at December 31,
1996, 1995 and 1994:
<TABLE>
<CAPTION>
(In thousands) 1996 1995 1994
============================================================
<S> <C> <C> <C>
Federal funds purchased
and securities sold
under repurchase
agreements $115,512 $131,115 $ 145,419
Federal Home Loan
Bank borrowings 715,000 465,000 210,050
Other short-term
borrowings 2,017 1,141 1,131
- ------------------------------------------------------------
Total $832,529 $597,256 $356,600
============================================================
</TABLE>
BancGroup has available Federal Funds lines from upstream banks
including the Federal Home Loan Bank (FHLB) totaling $515 million at December
31, 1996. 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 has
availability of up to $1 billion from the FHLB on either a short or long-term
basis excluding funds available through the federal funds line. CMC has an
additional $118 million available through a warehouse line with FHLB that is
collateralized by mortgage loans held for sale. Short-term borrowings, including
FHLB borrowings, have been used to fund short-term assets, primarily mortgage
loans held for sale, and loans. FHLB borrowings have been used during 1996 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 1996 the significant changes in BancGroup's cash
flows have centered around loan growth and fluctuations in mortgage loans held
for sale. Loan growth of $548 million in 1996 and $590 million in 1995 has been
one of the principal uses of cash in both years. In 1996, BancGroup securitized
approximately $88 million of residential mortgage loans and repurchased the
securities. Mortgage loans held for sale increased in 1996, using $47 million in
funds. As noted in previous sections, short-term borrowings increased $235
million in 1996 and were used to fund loan growth. Management has chosen to fund
short-term fluctuations in the
38 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
<PAGE> 26
volume of mortgage loans held for sale with short-term borrowings as opposed to
increasing rate sensitive deposits. Deposit growth of $308 million with $63
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, 1996 had $1.7
billion of residential real estate loans. These loans provide collateral for the
current $1 billion credit availability at the FHLB. The FHLB unused credit
capacity, $281 million at December 31, 1996, provides the Company significant
flexibility in asset/liability management, liquidity and deposit pricing.
In January 1996, the Company called $7.5 million of its 1985
subordinated debentures which had a maturity date of 2000. As a result, 806,598
shares of BancGroup stock were issued and cash was paid for the remaining
debentures. In December 1996, BancGroup entered into a two year revolving line
of credit for $35 million and a term loan with a maximum principal amount of
$15.5 million. This line of credit provides an additional source of funding for
acquisition related activities. In January 1997, BancGroup issued $70 million in
Trust Preferred Securities. These securities qualify as Tier I Capital, will be
shown as long-term debt in the consolidated financial statements, and carry an
8.92% interest rate. A portion of the proceeds of the offering were utilized to
pay off the term note and revolving debt outstanding. The remainder of the
proceeds will be used for acquisitions and other business purposes. 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 $1.8 million for the payment of interest on debt,
$2.4 million for principal payment on term notes (See Note 9 to the consolidated
financial statements) and $16.2 million for the payment of dividends. The parent
company's primary source of funds was $14.4 million in dividends received from
its banking subsidiaries. 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 $104 million of retained earnings plus certain 1997 earnings would
be available for distribution to BancGroup, from its subsidiaries, as dividends
in 1997 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 banks.
At December 31, 1996, BancGroup's liquidity position was adequate with
loan maturities of $962 million, or 26% of the total loan portfolio, due within
one year. Securities totaling $330 million or 57% of the total portfolio also
had maturities within one year or have been classified as available for sale. As
of December 31, 1996 there were, however, no current plans to dispose of any
significant portion of these securities. In addition BancGroup has $281 million
in additional borrowing capacity at the FHLB and CMC has $118 million available
through a warehouse line with FHLB.
BancGroup's asset/liability management policy has also established
targets for interest rate sensitivity. Changes in interest rates will
necessarily lead to changes in the net interest margin. It is ALMCO's goal to
minimize volatility in the net interest margin by taking an active role in
managing the level, mix and maturities of assets and liabilities and by
analyzing and taking action to manage mismatch and basis risk. The interest
sensitivity schedule reflects an 9.4% negative gap at 12 months; therefore,
BancGroup has a greater exposure to net income if interest rates increase. Based
on this schedule, management believes that neither an increase or decrease in
interest rates of 100 basis points would result in a material swing in net
income. Management has managed the asset/liability position of the bank through
traditional sources. BancGroup 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 and held for sale. (See
Note 6 to the consolidated financial statements.) The following table summarizes
BancGroup's interest rate sensitivity as of December 31, 1996.
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 39
<PAGE> 27
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996
- -----------------------------------------------------------------------------------------------------------------
INTEREST SENSITIVE WITHIN
- -----------------------------------------------------------------------------------------------------------------
TOTAL 0-90 91-180 181-365 1-5 OVER
(IN THOUSANDS) BALANCE DAYS DAYS DAYS YEARS 5 YEARS
=================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Rate Sensitive Assets:
Federal funds sold and resale agree-
ments and interest bearing deposits $ 7,603 $ 7,603 $ -- $ -- $ -- $ --
Investment securities 275,800 134,928 15,644 42,272 68,139 14,817
Securities available for sale 306,835 52,765 304 4,878 232,192 16,696
Mortgage loans held for sale 157,433 157,433 -- -- -- --
- -----------------------------------------------------------------------------------------------------------------
Loans, net of unearned income 3,680,415 1,241,805 197,353 444,306 1,281,769 515,182
Allowance for possible loan losses (45,170) (15,241) (2,422) (5,453) (15,731) (6,323)
- -----------------------------------------------------------------------------------------------------------------
Net loans 3,635,245 1,226,564 194,931 438,853 1,266,038 508,859
Nonearning assets 487,416 -- -- - -- 487,416
=================================================================================================================
Total Assets $4,870,332 $1,579,293 $ 210,879 $ 486,003 $1,566,369 $1,027,788
=================================================================================================================
Rate Sensitive Liabilities:
Interest-bearing demand deposits $ 595,024 $ 362,053 $ -- $ -- $ -- $ 232,971
Savings deposits 359,533 228,581 -- 408 -- 130,544
Certificates of deposits less than
$100,000 1,379,362 399,887 206,440 304,821 467,309 905
Certificates of deposits more than
$100,000 390,169 160,911 56,748 94,988 77,422 100
IRAS 218,161 75,982 25,683 30,877 85,365 254
Open time deposits 47,035 304 200 45,825 706 --
Short-term borrowings 832,529 672,529 -- 50,000 110,000 --
Long-term debt 37,667 15,460 295 403 1,484 20,025
Noncosting liabilities & equity 1,010,852 -- -- -- -- 1,010,852
=================================================================================================================
Total Liabilities & Equity $4,870,332 $1,915,707 $ 289,366 $ 527,322 $ 742,286 $1,395,651
=================================================================================================================
Gap $ -- $ (336,414) $ (78,487) $ (41,319) $ 824,083 $ 367,863
=================================================================================================================
Cumulative Gap $ -- $ (336,414) $(414,901) $ (456,220) $ 367,863 $ --
=================================================================================================================
</TABLE>
At the bottom of the table is the interest rate sensitivity gap which
is the difference between rate sensitive assets and rate sensitive liabilities.
In reviewing the table, it should be noted that the balances are shown
for a specific point in time and, because the interest sensitivity position is
dynamic, it can change significantly over time. For all interest earning assets
and interest bearing liabilities, variable rate assets and liabilities are
reflected in the time interval of the assets or liabilities' earliest repricing
date. Fixed rate assets and liabilities have been allocated to various time
intervals based on contractual repayment. Furthermore, the balances reflect
contractual repricing of the deposits and management's position on repricing
certain deposits where management discretion is permitted. Prepayment
assumptions are applied at a constant rate based on the Company's 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 $700 million with a corresponding cumulative gap at one year of
negative $820 million.
40 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
<PAGE> 28
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 1996 was 33%. This level is in 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
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, 1996 are stated below:
<TABLE>
<S> <C>
Capital (thousands):
Tier I Capital:
Shareholders' equity
(excluding unrealized gain
on securities available
for sale) less intangibles $ 312,056
Tier II Capital:
Allowable loan loss reserve 43,362
Subordinated debt 7,187
------------
Total Capital $ 362,605
Risk Adjusted Assets (thousands) $ 3,466,414
Total Assets (thousands) $ 4,870,332
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
- -------------------------------------------------------------------
<S> <C> <C> <C>
Tier I leverage ratio 6.65% 6.40% 6.43%
Risk Adjusted Capital
Ratios:
Tier I Capital Ratio 9.00% 8.88% 9.24%
Total Capital Ratio 10.46% 10.71% 11.27%
</TABLE>
As previously mentioned, in January 1997 BancGroup issued $70 million
in Trust Preferred Capital Securities. The above capital ratios would have been
approximately 8.00%, 10.96% and 12.34% for Tier I leverage, Tier I risk adjusted
and total risk adjusted capital had these securities been outstanding at
December 31, 1996.
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, 1996, these deposits totaled $22.9
million.
FINANCIAL ACCOUNTING STANDARDS BOARD RELEASES
In June 1996, the Financial Accounting Standards Board issued SFAS No.
125 "Accounting for Transfers and Servicing of Financial Assets 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. Earlier or retroactive
application is not permitted. However, in December 1996, the Financial
Accounting Standards Board issued SFAS No. 127, "Deferral of the Effective Date
of certain provisions of FASB Statement No. 125." This statement defers the
effective date of Certain Provisions for one year (December 31, 1997). The
deferred provisions relate to repurchase agreements, dollar-roll transactions,
securities lending, and similar transactions. The effective date for all other
transfers and servicing of financial assets is unchanged. Management does not
believe that the adoption of SFAS No. 125, as amended by SFAS No. 127, will have
a material impact on BancGroup's financial statements.
BancGroup adopted SFAS No. 123, Accounting for Stock-based
Compensation, on January 1, 1996. (See Notes 1 and 14 to the consolidated
financial statements.)
CAUTIONARY STATEMENT PURSUANT TO SAFE HARBOR PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
This report contains "forward-looking statements" within the meaning of
the federal securities laws. The forward-looking statements in this report are
subject to risks and uncertainties that could cause actual results to differ
materially from those expressed in or implied by the statements.
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 41
<PAGE> 29
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, 1996 and
1995, and the related consolidated statements of income, changes in
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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, 1996 and 1995, the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the
Company changed its method of accounting for mortgage servicing rights in 1995
and for investments in 1994.
COOPERS & LYBRAND L.L.P.
Montgomery, Alabama
February 20, 1997
42 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
<PAGE> 30
CONSOLIDATED STATEMENTS OF CONDITION
December 31, 1996 and 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
ASSETS 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and due from banks $ 196,675 $ 162,874
Interest-bearing deposits in banks 5,103 6,270
Federal funds sold 2,500 32,139
Securities available for sale (Note 3) 306,835 214,837
Investment securities (market value: 1996, $277,858; 1995, $287,314) (Note 3) 275,800 283,995
Mortgage loans held for sale 157,433 110,486
Loans, net of unearned income (Note 4) 3,680,415 3,175,506
Less:
Allowance for possible loan losses (Note 5) (45,170) (41,490)
- -----------------------------------------------------------------------------------------------------------------------------
Loans, net 3,635,245 3,134,016
Premises and equipment, net (Note 7) 78,849 65,833
Excess of cost over tangible and identified intangible assets
acquired, net 30,064 29,460
Mortgage servicing rights 98,856 80,053
Other real estate owned 8,877 10,020
Accrued interest and other assets 74,095 72,211
- -----------------------------------------------------------------------------------------------------------------------------
Total $4,870,332 $4,202,194
=============================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------------------------------------------
Deposits:
Noninterest-bearing demand $ 594,385 $ 544,805
Interest-bearing demand 595,024 583,371
Savings 359,533 289,932
Time 2,034,727 1,786,152
- -----------------------------------------------------------------------------------------------------------------------------
Total deposits 3,583,669 3,204,260
FHLB short-term borrowings (Note 8) 715,000 465,000
Other short-term borrowings (Note 8) 117,529 132,256
Subordinated debt (Note 9) 7,187 17,120
Other long-term debt (Note 9) 30,480 29,143
Other liabilities 73,285 64,952
- -----------------------------------------------------------------------------------------------------------------------------
Total liabilities 4,527,150 3,912,731
- -----------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (Notes 6, 15)
Shareholders' Equity: (Notes 3, 10)
Common Stock, $2.50 par value; 44,000,000 shares authorized,
issued and outstanding: 32,749,282 and 31,039,376 in 1996 and 1995* 81,873 77,598
Additional paid in capital* 133,532 120,635
Retained earnings 128,318 90,885
Unearned compensation (1,603) (822)
Unrealized gain on securities available for sale, net of taxes 1,062 1,167
- -----------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 343,182 289,463
- -----------------------------------------------------------------------------------------------------------------------------
Total $4,870,332 $4,202,194
=============================================================================================================================
</TABLE>
See notes to consolidated financial statements.
* Restated to reflect the impact of a two-for-one stock split in the
form of a 100% stock split dividend paid on February 11, 1997.
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 43
<PAGE> 31
CONSOLIDATED STATEMENTS OF INCOME
For the years ended
December 31, 1996,1995 and 1994
(Dollars in thousands)
<TABLE>
<CAPTION>
1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $314,750 $255,447 $185,960
Interest and dividends on securities
Taxable 27,663 24,803 20,701
Nontaxable 2,454 2,488 2,152
Dividends 2,103 2,137 1,779
Interest on federal funds sold and securities purchased under
resale agreements 1,791 2,095 929
Other interest 217 344 382
- -----------------------------------------------------------------------------------------------------------------------------
Total interest income 348,978 287,314 211,903
- -----------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on deposits 138,956 113,912 76,985
Interests on short-term borrowing 37,741 29,305 10,456
Interest on long-term debt 2,603 3,743 3,461
- -----------------------------------------------------------------------------------------------------------------------------
Total interest expense 179,300 146,960 90,902
- -----------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME: 169,678 140,354 121,001
Provision for possible loan losses (Notes 1,5) 9,121 7,350 7,506
- -----------------------------------------------------------------------------------------------------------------------------
NET INTERST INCOME AFTER PROVISION FOR POSSIBLE LOAN LOSSES: 160,557 133,004 113,495
- -----------------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME:
Mortgage servicing fees 28,067 23,787 22,216
Service charges on deposit accounts 19,415 16,517 14,365
Securities gains, net (Note 3) 139 33 84
Other charges, fees and commmissions 4,403 3,900 3,414
Other income 13,958 9,756 7,673
- -----------------------------------------------------------------------------------------------------------------------------
Total noninterest income 65,982 53,993 47,752
- -----------------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE:
Salaries and employee benefits 55,074 48,668 50,548
Occupancy expense of bank premises, net 12,013 10,605 10,688
Furniture and equipment expenses 11,231 9,540 8,074
Amortization of mortgage servicing rights 12,522 9,095 6,078
Amortization of intangible assets 2,029 1,525 1,353
SAIF special assignment 3,817 -- --
Other expense (Note 17) 46,782 42,771 38,936
- -----------------------------------------------------------------------------------------------------------------------------
Total noninterest expense 143,468 122,204 115,677
- -----------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 83,071 64,793 45,570
Applicable income taxes (Note 18) 29,463 23,240 15,829
- -----------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 53,608 $ 41,553 $ 29,741
=============================================================================================================================
EARNINGS PER SHARE:
Primary* $ 1.62 $ 1.32 $ 1.00
Fully-diluted* 1.60 1.28 0.99
AVERAGE NUMBER OF SHARES OUTSTANDING:
Primary* 33,062 31,594 29,796
Fully-diluted* 33,792 33,334 31,330
=============================================================================================================================
</TABLE>
See notes to consolidated financial statements.
* Restated to reflect the impact of a two-for-one stock split in the
form of a 100% stock split dividend paid on February 11, 1997.
44 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
<PAGE> 32
CONSOLIDATED STATEMENT OF CHANGES
IN SHAREHOLDERS' EQUITY
For the years ended
December 31, 1996, 1995 and 1994
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
CLASS A CLASS B ADDITIONAL
COMMON STOCK COMMON STOCK COMMON STOCK PAID IN RETAINED
SHARES* AMOUNT* SHARES* AMOUNT* SHARES* AMOUNT* CAPITAL* EARNINGS
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994 26,286,278 $ 65,716 1,273,790 $3,184 $ 91,145 $ 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 combinations 14,940 37 70
Issuance of common stock by
a pooled bank prior to merger 901,370 2,254 2,880
Net income 29,741
Cash dividends: (Class A, $0.40 per
share: Class B, $0.20 per share) (7,432)
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 96,099 59,853
- -------------------------------------------------------------------------------------------------------------------------------
Shares issued under:
Directors Stock Plan 1,716 4 32,332 $ 81 241
Stock Option Plans 13,182 33 65,856 165 180
Dividend Reinvestment 53,516 134 448
Stock Bonus & Retention Plan 50,000 125 697
Employee Stock Purchase Plan 536 1 7,534 19 90
Issuance of common stock by
a pooled bank prior to merger 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 business 2,089,994 5,225 22,591
combinations
Net income
Cash dividends: (Class A, $0.1125 per 41,553
share: Class B, $0.0625; Common,
$0.3375 per share) (10,521)
Conversion of 7 1/2% convertible
subordinated debentures 23,418 59 269
Conversion of 12 3/4% convertible
subordinated debentures 1,120 2 8
Change in unrealized gain (loss) on
securities available for sale, net
of taxes
- -------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 0 0 0 0 31,039,376 77,598 120,635 90,885
- -------------------------------------------------------------------------------------------------------------------------------
Shares issued under:
Directors Stock Plan 31,710 79 249
Stock Option Plans 423,336 1,058 1,196
Dividend Reinvestment 60,136 150 897
Stock Bonus & Retention Plan 48,340 121 833
Employee Stock Purchase Plan 10,264 26 154
Issuance of shares for business combination 154,596 387 2,214
Net income 53,608
Cash dividends: ($.54 per share) (16,175)
Conversion of 7 1/2% convertible
subordinated debentures 174,926 437 2,011
Conversion of 12 3/4% convertible
subordinated debentures 806,598 2,017 5,343
Change in unrealized gain on securities
available for sale, net of taxes
- -------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 0 $ 0 0 $ 0 32,749,282 $81,873 $133,532 $128,318
===============================================================================================================================
<CAPTION>
Unrealized
Gain (Loss) on
Securities Total
Unearned Available Shareholders'
Compensation For Sale Equity
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
Balance, January 1, 1994 - $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 combinations 107
Issuance of common stock by
a pooled bank prior to merger 5,134
Net income 29,741
Cash dividends: (Class A, $0.40 per
share: Class B, $0.20 per share) (7,432)
Conversion of Class B Common
Stock to Class A Common Stock
Unrealized loss on securities -
available for sale, net of taxes $(3,660) (3,660)
- ----------------------------------------------------------------------------------------------------
Balance, December 31, 1994 (3,660) 224,018
- ----------------------------------------------------------------------------------------------------
Shares issued under:
Directors Stock Plan 326
Stock Option Plans 378
Dividend Reinvestment 582
Stock Bonus & Retention Plan $(822) -
Employee Stock Purchase Plan 110
Issuance of common stock by
a pooled bank prior to merger 36
Conversion of Class A Common
Stock and Class B Common
Stock to Common Stock -
Issuance of shares for business 27,816
combinations
Net income
Cash dividends: (Class A, $0.1125 per 41,553
share: Class B, $0.0625; Common,
$0.3375 per share) (10,521)
Conversion of 7 1/2% convertible
subordinated debentures 328
Conversion of 12 3/4% convertible
subordinated debentures 10
Change in unrealized gain (loss) on
securities available for sale,
net of taxes 4,827 4,827
- ----------------------------------------------------------------------------------------------------
Balance, December 31, 1995 (822) 1,167 289,463
- ----------------------------------------------------------------------------------------------------
Shares issued under:
Directors Stock Plan 328
Stock Option Plans 2,254
Dividend Reinvestment 1,047
Stock Bonus & Retention Plan (781) 173
Employee Stock Purchase Plan 180
Issuance of shares for business combination 2,601
Net income 53,608
Cash dividends: ($.54 per share) (16,175)
Conversion of 7 1/2% convertible
subordinated debentures 2,448
Conversion of 12 3/4% convertible
subordinated debentures 7,360
Change in unrealized gain on securities
available for sale, net of taxes (105) (105)
- ----------------------------------------------------------------------------------------------------
Balance, December 31, 1996 $(1,603) $ 1,062 $343,182
====================================================================================================
</TABLE>
See notes to consolidated financial statements.
* Restated to reflect the impact of a two-for-one stock split in the form of a
100% stock dividend paid on February 11, 1997.
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 45
<PAGE> 33
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1996, 1995, and 1994
(In thousands)
<TABLE>
<CAPTION>
1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 53,608 $ 41,553 $ 29,741
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation, amortization and accretion 11,950 11,398 10,129
Amortization of mortgage servicing rights 12,522 9,095 6,078
Amortization of excess servicing fees 1,105 1,166 1,721
Provision for possible loan losses 9,121 7,350 7,506
Deferred income taxes (1,103) (2,225) (2,361)
Gain on sale of securities, net (139) (33) (84)
Additions to mortgage servicing rights (32,264) (32,139) (34,624)
Net (increase) decrease in mortgage loans held for sale (46,947) (49,760) 303,577
Increase in interest receivable (1,770) (8,697) (3,977)
Decrease in prepaids and other receivables 687 1,357 953
Decrease in accrued expenses and accounts payable (789) (6,719) (37,055)
Increase (decrease) in accrued income taxes 414 2,709 (2,372)
Increase in interest payable 3,737 10,643 2,233
Other, net 4,495 (1,595) (2,457)
- -----------------------------------------------------------------------------------------------------------------------------
Total adjustments (38,981) (57,450) 249,267
- -----------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 14,627 (15,897) 279,008
- -----------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from maturities of securities available for sale 66,185 21,034 35,601
Proceeds from sales of securities available for sale 3,425 13,585 20,329
Purchase of securities available for sale (67,851) (68,393) (16,970)
Proceeds from maturities of investment securities 143,147 90,160 74,123
Proceeds from sales of investment securities -- 10,119 --
Purchases of investment securities (144,527) (55,186) (129,757)
Net decrease (increase) in short-term investment securities 10,000 -- (4,494)
Net increase in loans (547,821) (589,868) (375,343)
Cash and cash equivalents received in bank acquisitions, net (Note 2) 1,437 23,201 --
Cash and cash equivalents received in the purchase
of assets and assumption of liabilities (Note 2) 7,028 -- 12,154
Capital expenditures (20,406) (9,818) (9,723)
Proceeds from sale of other real estate owned 7,147 6,430 7,639
Other, net 111 2,474 6,799
- -----------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (542,125) (556,262) (379,642)
- -----------------------------------------------------------------------------------------------------------------------------
Cash flows from Financing activities:
Net increase in demand, savings and time deposits 308,484 451,888 3,466
Net increase in federal funds purchased and
repurchase agreements and other short-term borrowings 233,397 200,588 60,373
Proceeds from issuance of long-term debt 6,394 12,092 25,336
Repayment of long-term debt (5,064) (55,510) (13,443)
Proceeds from issuance of common stock 3,457 1,038 6,337
Dividends paid (16,175) (10,521) (7,432)
- -----------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 530,493 599,575 74,637
- -----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 2,995 27,416 (25,997)
Cash and cash equivalents at beginning of year 201,283 173,867 199,864
- -----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year (Note 1) $ 204,278 $ 201,283 $ 173,867
=============================================================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 175,563 $ 136,338 $ 89,191
Income taxes 27,593 21,323 23,079
Non-cash transactions:
Transfer of loans to other real estate $ 8,184 $ 5,532 $ 3,816
Origination of loans from the sale of other real estate 303 456 1,309
Securitization of mortgage loans 87,641 -- --
Transfer of investment securities to securities available for sale -- 56,921 33,457
Conversion of subordinated debentures to common stock 9,808 428 --
Assets acquired in business combinations 48,367 330,626 47,985
Liabilities assumed in business combinations 45,766 302,810 57,191
=============================================================================================================================
See notes to consolidated financial statements.
</TABLE>
46 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 1996, 1995 and 1994
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 for 1995 and 1994 have been previously
restated to give retroactive effect to the mergers with Commercial Bancorp of
Georgia, Inc. and Southern Banking Corporation on July 3, 1996, which were
accounted for as poolings 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, 1996 and 1995 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.
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 measure-
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 47
<PAGE> 35
ment 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, 1996, 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 up to 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, 1996, BancGroup had mortgage servicing and excess
servicing rights with a net book value of $107 million. The estimated combined
fair value of these assets is approximately $152 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, 1996 and 1995 are stated net of accumulated
amortization of approximately $38,425,000 and $25,903,000, 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 resi-
48 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
<PAGE> 36
dential loans generally range from 1/4 of 1% to 1/2 of 1% per year on the
outstanding principal balance.
LONG LIVED ASSETS--BancGroup adopted SFAS No. 121, "Accounting for the
Impairment of Long Lived Assets and for Long-Lived Assets to be Disposed Of"
on January 1, 1996. 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. The adoption of SFAS No. 121 did not have a
material impact on BancGroup's financial statements.
INCOME TAXES--BancGroup uses the asset and liability method of
accounting for income taxes (See Note 18). Under the asset and liability
method, deferred tax assets and liabilities are recorded at currently enacted
tax rates applicable to the period in which assets or liabilities are expected
to be realized or settled. 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.
STOCK-BASED COMPENSATION--BancGroup adopted SFAS No. 123, "Accounting
for Stock-Based Compensation", on January 1, 1996. 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. BancGroup has elected to continue to
measure compensation cost for their stock option plan under the provisions in
APB Opinion 25.
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 $5,029,000 $3,796,000 and $2,736,000 for the years ended
December 31, 1996, 1995 and 1994, respectively.
RECENTLY ISSUED ACCOUNTING STANDARDS--In June 1996, the Financial
Accounting Standards Board issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities". This
statement provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities. This
statement utilizes the financial-components approach that focuses on control.
Under that approach, after a transfer of financial assets, an entity recognizes
the financial and servicing assets it controls and the liabilities it has
incurred, derecognizes financial assets when control has been surrendered, and
derecognizes liabilities when extinguished.
A transfer of financial assets in which the transferor surrenders
control over those assets is accounted for as a sale to the extent that
consideration other than beneficial interests in the transferred assets is
received in exchange.
This Statement requires that liabilities and derivatives incurred or
obtained by transferors as part of a transfer of financial assets be initially
measured at fair value, if practicable. It also requires that servicing assets
and other retained interests in the transferred assets be measured by allocating
the previous carrying amount between the assets sold, if any, and retained
interests, if any, based on their relative fair values at the date of the
transfer.
This Statement requires that a liability be derecognized if and only
if either (a) the debtor pays the creditor and is relieved of its obligation
for the liability or (b) the debtor is legally released from being the primary
obligor under the liability either judicially or by the creditor. Therefore, a
liability is not considered extinguished by an in-substance defeasance.
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. Earlier or retroactive application is not
permitted. However, in December 1996, the Financial Accounting Standards Board
issued SFAS No. 127, "Deferral of the Effective Date of certain Provisions of
FASB Statement No. 125." This statement defers the effective date of certain
provisions for one year (December 31, 1997). The deferred provisions relate to
repurchase agreements, dollar-roll transactions, securities lending, and
similar transactions. The effective date for all other transfers and servicing
of financial assets is unchanged. Management does not believe that the
adoption of SFAS No. 125 will have a material impact on BancGroup's financial
statements.
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 CBG is included in all periods presented.
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 49
<PAGE> 37
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, SBC is
included in all periods presented.
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, CMC is included in all periods presented.
Presented below is summary operating information for BancGroup showing
the effect of the business combinations described in the preceding paragraphs.
<TABLE>
<CAPTION>
AS PREVIOUSLY EFFECT OF CURRENTLY
(In thousands) REPORTED POOLINGS REPORTED
==========================================================
<S> <C> <C> <C>
1995:
Net Interest Income $118,442 $21,912 $140,354
Noninterest income 45,982 8,011 53,993
Net income 38,794 2,759 41,553
1994:
Net interest income 104,681 16,320 121,001
Noninterest income 18,125 29,627 47,752
Net income 27,671 2,070 29,741
==========================================================
</TABLE>
Prior to the date of consummation in 1996, CBG and SBC had net
interest income of $6,473,000 and $7,166,000 respectively, and Net Income of
$1,340,000 and $1,750,000 respectively.
On April 19, 1996, BancGroup purchased certain assets totaling
$31,428,000 and assumed certain liabilities, primarily deposits, totaling
$30,994,000 of the Enterprise, Alabama branch of First Federal Bank.
During 1995 and 1996, four purchase method combinations were
consummated; the following table represents those acquisitions.
(Dollars in thousands)
<TABLE>
<CAPTION>
Common
Stock Issued
Consummation -------------------
Bank Date Shares Value
=============================================================
<S> <C> <C> <C>
Brundidge Banking
Company March 31, 1995 532,868 $ 6,209
Mt. Vernon
Financial Corp. October 20, 1995 1,043,440 14,608
Farmers and
Merchants
Bank November 3, 1995 513,686 6,999
Dothan Federal
Savings Bank July 8, 1996 154,690 2,601
</TABLE>
The value of the shares issued represents the total purchase price of
Brundidge Banking Company and Mt. Vernon Financial Corp. Farmers and Merchants
Bank and Dothan Federal Savings Bank shareholders received $3 million and $2.6
million in cash, respectively, in addition to the amounts received in stock.
The financial institution mergers 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, 1996 and 1995, 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) 1996 1995
=====================================================
(Unaudited)
<S> <C> <C>
Net interest income before
provision for possible
loan losses $169,716 $145,355
Net income 53,628 42,683
Earnings per share:
Primary $1.62 $1.29
Fully-diluted $1.60 $1.26
Average shares outstanding:
Primary 33,143 33,151
Fully-diluted 33,873 34,891
=====================================================
</TABLE>
The following chart summarizes the assets acquired and the liabilities
assumed in connection with the 1996 and 1995 purchase method combinations:
<TABLE>
<CAPTION>
1996 1995
(In thousands) TOTAL TOTAL
==========================================================
<S> <C> <C>
Cash and due froms $ 480 $ 5,899
Interest-bearing deposits in banks -- 987
Federal funds sold 957 16,325
Securities available for sale 7,529 25,557
Investment securities -- 11,456
Loans, net 35,985 249,086
Accrued interest and other assets 1,766 10,009
Deposits 39,931 247,848
Short-term borrowings 1,875 40,000
Other long-term debt -- 3,541
Other liabilities 3,960 11,421
Equity 2,601 27,816
==========================================================
Excess of cost over tangible and
identified intangible assets
acquired, net $ 1,648 $11,317
==========================================================
</TABLE>
50 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
<PAGE> 38
RECENT BUSINESS COMBINATIONS
On January 3, 1997, Jefferson Bancorp, Inc. ("Jefferson") was merged
into BancGroup. Jefferson is a Florida corporation and is a holding company for
Jefferson Bank of Florida located in Miami Beach, Florida. Jefferson has merged
with BancGroup and Jefferson Bank of Florida will merge with BancGroup's
existing bank subsidiary in Orlando, Florida, Colonial Bank, upon receipt of
proper regulatory approval. A total of 3,854,952 shares of BancGroup's Common
Stock was issued to the stockholders of Jefferson. At December 31, 1996,
Jefferson had assets of $472.7 million, deposits of $405.8 million and
stockholders' equity of $32.3 million. This merger will be accounted for as a
pooling-of-interests.
In February 1997, BancGroup issued supplemental 1995 financial
statements giving retroactive effect to the merger with Jefferson. 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; thus, they do not
include the effect of the Jefferson merger.
On January 3, 1997, Tomoka Bancorp, Inc. ("Tomoka") was merged into
BancGroup. Tomoka is a Florida corporation and is a holding company for Tomoka
State Bank located in Ormond Beach, Florida. Tomoka has merged with BancGroup
and Tomoka State Bank has merged with BancGroup's existing bank subsidiary in
Orlando, Florida, Colonial Bank. A total of 661,992 shares of BancGroup's
Common Stock was issued to the stockholders of Tomoka. At December 31, 1996,
Tomoka had assets of $76.7 million, deposits of $68.2 million and
stockholders' equity of $6.5 million. This merger will be accounted for as a
pooling-of-interests.
On January 9, 1997, First Family Financial Corporation ("First Family")
was merged into BancGroup. First Family is a Florida corporation and is a
holding company for First Family Bank, fsb located in Eustis, Florida. First
Family has merged with BancGroup and following regulatory approval, First Family
Bank, fsb will merge with BancGroup's existing subsidiary bank in Orlando,
Florida, Colonial Bank. A total of 329,492 shares of BancGroup's Common Stock
and $6,491,875 in cash has been issued to the stockholders of First Family. At
December 31, 1996, First Family had assets of $167.3 million, deposits of $156.7
million and stockholders' equity of $8.7 million. This merger will be accounted
for as a purchase method combination
On, January 31, 1997, D/W Bankshares, Inc. ("Bankshares") was merged
into BancGroup. Bankshares is a Georgia corporation and is a holding company for
Dalton/Whitfield Bank & Trust located in Dalton, Georgia ("Dalton/Whitfield").
Bankshares has merged with BancGroup and following regulatory approval
Dalton/Whitfield will merge with BancGroup's existing bank subsidiary in
Lawrenceville, Georgia, Colonial Bank. A total of 1,016,548 shares of
BancGroup's Common Stock was issued to the stockholders of Bankshares. At
December 31, 1996, Bankshares had assets of $138.7 million, deposits of $124.4
million and stockholders' equity of $10.0 million. This merger will be accounted
for as a pooling-of-interests.
Pro forma unaudited results of operations assuming the Jefferson and
Bankshares mergers had occurred on January 1, 1994 (earliest period presented),
are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Net interest income $192,075 $163,003 $142,853
Noninterest income 70,818 59,260 52,830
Net income 50,371 44,801 33,875
Earnings Per Share:
Primary $ 1.39 $ 1.27 $ 0.98
Fully-Diluted $ 1.37 $ 1.21 $ 0.97
- --------------------------------------------------------------------------
</TABLE>
PENDING MERGERS
BancGroup 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 merge with BancGroup and following such
merger, Fort Brooke Bank will merge with BancGroup's existing bank subsidiary in
Orlando, Colonial Bank. Based on the market price of BancGroup's Common Stock as
of February 25, 1997, 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 in this transaction will depend upon
the market value of such Common Stock at the time of the merger subject to a
maximum of 1,950,152 shares and a minimum of 1,600,124 shares to be issued. This
transaction is subject to, among other things, approval by the stockholders of
Fort Brooke and approval by appropriate regulatory authorities. At December 31,
1996, Fort Brooke had assets of $208.8 million, deposits of $185.8 million and
stockholders' equity of $16.6 million. This merger will be accounted for as a
pooling-of-interests.
BancGroup also entered into a definitive agreement to merge Shamrock
Holding, Inc., parent of The Union Bank in Evergreen, Alabama, ("Shamrock") into
BancGroup. Pursuant to that agreement, BancGroup will make a cash offer to
purchase all of the outstanding shares of Shamrock for an aggregate cash price
of $11,482,000, subject to regulatory approval and other conditions. At December
31, 1996, The Union Bank had total assets of approximately $54.5 million,
deposits of $46.4 million, and stockholders' equity of $7.9 million. This
merger will be accounted for as a purchase method combination.
In February 1997, BancGroup executed letters of intent to merge two
additional Florida banks into BancGroup. First Commerce Banks of Florida, Inc.
("First Commerce"), in Winter Haven, had assets of $106 million at December 31,
1996. Great Southern Bank ("Great Southern"), in West Palm Beach, had assets of
$119 million at December 31, 1996. The First Commerce merger will be accounted
for as a purchase while the Great Southern merger will be a pooling of
interests.
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 51
<PAGE> 39
3. SECURITIES
The carrying and market values of investment securities are summarized
as follows:
<TABLE>
<CAPTION>
INVESTMENT SECURITIES
(In thousands) 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
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 $237,764 $2,330 $ (992) $239,102 $226,621 $3,834 $(1,646) $228,809
Obligations of state and
political subdivisions 37,284 945 (32) 38,197 46,337 1,250 (128) 47,459
Other 752 4 (197) 559 11,037 52 (43) 11,046
- ---------------------------------------------------------------------------------------------------------------------------------
Total $275,800 $3,279 $(1,221) $277,858 $283,995 $5,136 $(1,817) $287,314
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The carrying and market values of securities available for sale are
summarized as follows:
<TABLE>
<CAPTION>
SECURITIES AVAILABLE FOR SALE
(In thousands) 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
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 $291,982 $2,279 $(1,518) $292,743 $198,971 $1,959 $(1,110) $199,820
Obligations of state and
political subdivisions 6,766 56 (10) 6,812 6,984 37 -- 7,021
Other 6,437 898 (55) 7,280 7,040 1,020 (64) 7,996
- ---------------------------------------------------------------------------------------------------------------------------------
Total $305,185 $3,233 $(1,583) $306,835 $212,995 $3,016 $(1,174) $214,837
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The market values of obligations of states and political subdivisions
were established with the assistance of an independent pricing service. They
were based on available market data reflecting transactions of relatively small
size and not necessarily indicative of the prices at which large amounts of
particular issues could be readily sold or purchased.
Included within other investment securities are $10,000,000 in
marketable equity securities at December 31, 1995. Included within securities
available for sale is $37,574,000 and $24,496,000 in Federal Home Loan Bank
stock at December 31, 1996 and 1995, respectively.
Securities with a carrying value of approximately $432,216,000 and
$312,630,000 at December 31, 1996 and 1995 respectively, were pledged for
various purposes as required or permitted by law.
Gross gains of $154,000, $85,000 and $222,000 and gross losses of
$15,000, $52,000 and $138,000 were realized on sales of securities for 1996,
1995, and 1994, respectively. The amortized cost and market value of debt
securities at December 31, 1996, 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 $ 59,529 $ 59,811 $ 15,955 $ 15,962
Due after one year
through five years 130,773 132,176 68,257 68,759
Due after five years
through ten years 12,817 13,401 13,019 13,237
Due after ten years 2,037 2,135 158 165
- ----------------------------------------------------------------------------------
205,156 207,523 97,389 98,123
Mortgage-backed
securities 70,644 70,335 169,064 169,583
- ----------------------------------------------------------------------------------
Total $275,800 $277,858 $266,453 $267,706
- ----------------------------------------------------------------------------------
</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.
52 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
<PAGE> 40
4. LOANS
A summary of loans follows:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
- ------------------------------------------------------------
<S> <C> <C>
Commercial, financial,
and agricultural $ 492,619 $ 436,791
Real estate--commercial 797,341 692,550
Real estate--construction 402,502 335,645
Real estate--mortgage 1,688,299 1,451,338
Installment and consumer 247,195 215,043
Other 53,152 44,746
- ------------------------------------------------------------
Subtotal $ 3,681,108 $ 3,176,113
Unearned income (693) (607)
- ------------------------------------------------------------
Total $ 3,680,415 $ 3,175,506
============================================================
</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, 1996.
In the normal course of business, loans are made to officers,
directors, principal shareholders and to companies in which they own a
significant interest. Loan activity to such parties with an aggregate loan
balance of more than $60,000 during the year ended December 31, 1996 are
summarized as follows:
<TABLE>
<CAPTION>
(In thousands)
Balance Balance
1/1/96 Additions Repayments 12/31/96
<S> <C> <C> <C>
===============================================
$37,238 $48,935 $46,067 $40,106
===============================================
</TABLE>
At December 31, 1996 and 1995, the recorded investment in loans for
which impairment has been recognized in accordance with SFAS 114 totaled
$28,799,000 and $16,293,000, respectively, and these loans had a corresponding
valuation allowance of $7,654,000 and $5,907,000, respectively. The impaired
loans were measured for impairment based primarily on the value of underlying
collateral. For the years ended December 31, 1996 and 1995, the average
recorded investment in impaired loans was approximately $22,546,000 and
$18,461,000. BancGroup recognized approximately $2,040,000 and $1,040,000 of
interest on impaired loans during the portion of the year that they were
impaired in 1996 and 1995, respectively.
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, borrowers' financial data, and borrowers'
operating factors such as cash flows, operating income or loss, etc.
5. ALLOWANCE FOR POSSIBLE LOAN LOSSES
An analysis of the allowance for possible loan losses is as follows:
<TABLE>
<CAPTION>
(In thousands) 1996 1995 1994
- --------------------------------------------------------------------
<S> <C> <C> <C>
Balance, January 1 $ 41,490 $ 36,985 $ 30,946
Addition due to
acquisitions 738 1,129 501
Provision charged
to income 9,121 7,350 7,506
Loans charged off (10,654) (6,302) (5,453)
Recoveries 4,475 2,328 (3,485)
- --------------------------------------------------------------------
Balance, December 31 $ 45,170 $ 41,490 $ 36,985
- --------------------------------------------------------------------
</TABLE>
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 53
<PAGE> 41
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, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
Contract Amount
============================================================
(In thousands) 1996 1995
============================================================
<S> <C> <C>
Financial instruments whose
contract amounts represent
credit risk:
Loan commitments $ 625,896 $ 494,703
Standby letters of credit 45,229 28,440
Mortgage sales commitments 193,970 121,925
</TABLE>
Since many of the loan commitments may expire without being drawn
upon, the total commitment amount does not necessarily represent future cash
requirements. The credit risk involved in issuing letters of credit and funding
loan commitments is essentially the same as that involved in extending loan
facilities to customers.
Obligations to sell loans at specified dates (typically within ninety
days of the commitment date) and at specified prices are intended to hedge the
interest rate risk associated with the time period between the initial offer to
lend and the subsequent sale to a permanent investor. Risks arise from changes
in interest rates. Changes in the market value of the sales commitments are
included in the measurement of the gain or loss on mortgage loans held for
sale. The current market value of these commitments was $194,858,000, and
$120,644,000 at December 31, 1996 and 1995, respectively.
7. PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
===========================================================
<S> <C> <C>
Land $ 19,971 $ 16,601
Bank premises 58,544 53,406
Equipment 55,853 47,556
Leasehold improvements 8,682 4,614
Construction in progress 1,665 1,993
Automobiles 339 360
- -----------------------------------------------------------
Total 145,054 124,540
Less accumulated depreciation
and amortization 66,205 58,707
- -----------------------------------------------------------
Premises and equipment, net $ 78,849 $ 65,833
===========================================================
</TABLE>
8. SHORT-TERM BORROWINGS
Short-term borrowings are summarized as follows:
<TABLE>
<CAPTION>
(In thousands) 1996 1995 1994
=====================================================================
<S> <C> <C> <C>
Federal funds purchased
and securities sold
under repurchase
agreements $115,512 $131,115 $145,419
FHLB borrowings 715,000 465,000 210,050
Other short-term
borrowings 2,017 1,141 1,131
- ---------------------------------------------------------------------
Total $832,529 $597,256 $356,600
=====================================================================
</TABLE>
BancGroup had outstanding term notes (Note 9) of which the current
portion, $1,033,000 and $1,000,000, is included in other short-term borrowings
at December 31, 1996 and 1995, respectively.
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,
1996, BancGroup can borrow up to $1.0 billion from the FHLB on either a short
or long-term basis. At December 31, 1996, $726 was outstanding. BancGroup has
available an additional unused credit of $281 million with the FHLB. FHLB has a
blanket lien on BancGroup's 1-4 family mortgage loans in the amount of the
outstanding debt. CMC has a warehouse line of credit with $118 million of
availability from FHLB, of which none was outstanding at December 31, 1996.
This warehouse line is collateralized by mortgage loans held for sale.
Additional details regarding short-term borrowings are shown below:
<TABLE>
<CAPTION>
(In thousands) 1996 1995 1994
======================================================================
<S> <C> <C> <C>
Average amount
outstanding
during the year $ 693,372 $ 478,596 $ 236,074
Maximum amount
outstanding at
any month-end 832,529 597,256 356,600
Weighted average
interest rate:
During year 5.44% 6.12% 4.42%
End of year 5.56% 5.78% 5.62%
======================================================================
</TABLE>
54 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
<PAGE> 42
9. LONG-TERM DEBT
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
===========================================================
<S> <C> <C>
12 3/4% Convertible
Subordinated
Debentures $ -- $ 7,483
7 1/2% Convertible
Subordinated
Debentures 7,187 9,637
Term Note 14,116 10,250
Line of Credit and Other 19 6,353
FHLB Advances 10,809 5,516
REMIC Bonds 5,536 7,024
- -----------------------------------------------------------
Total $ 37,667 $ 46,263
===========================================================
</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 were 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 could 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 512,800 shares of such
Common Stock would be issued.
At December 31, 1995, BancGroup had a term note with $11,250,000
outstanding and a line credit with $6,250,000 outstanding. This term note was
payable in annual installments of $1,000,000 and was due in August 1997. In
1996, BancGroup transferred the outstanding balances of the term note and line
of credit to a new term note. The 1996 term note has $15,149,000 outstanding at
December 31, 1996. (Also see Note 8.) The 1996 term note is payable in annual
installments of $1,033,000 with the balance due in 2001. In addition, BancGroup
entered into a new line of credit with the same financial institution totaling
$35 million, of which none is outstanding at December 31, 1996. The 1996 line
of Credit is due at maturity in October 1998. 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. In January
1997, the new term note was paid in full. The repayment was funded with a
portion of the proceeds from the Trust Preferred Securities offering discussed
below.
BancGroup had long-term Federal Home Loan Bank (FHLB) Advances
outstanding of $10,809,000 and $5,516,000 at December 31, 1996 and 1995,
respectively. These advances bear interest rates of 5.32% 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, 1996 the bonds have an outstanding
balance of $5,536,000 and are collateralized by FNMA mortgaged-backed
securities with a carrying value of $5,546,000. 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, 1996
Class Maturity (In thousands)
======================================================================
<S> <C> <C>
A-3 June 1, 2007 $ 845
A-4 September 1, 2017 4,691
- ----------------------------------------------------------------------
Total $5,536
======================================================================
</TABLE>
At December 31, 1996, long-term debt, including the current portion,
is scheduled to mature as follows:
<TABLE>
<CAPTION>
(In thousands)
====================================================
<S> <C>
1997 $ 2,199
1998 1,229
1999 1,438
2000 1,093
2001 11,082
Thereafter 22,643
- ----------------------------------------------------
Total $39,684
- ----------------------------------------------------
</TABLE>
On January 29, 1997, BancGroup issued, through a special purpose
trust, $70 million 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
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 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.
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
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 55
<PAGE> 43
for all shareholders. The Board of Directors is authorized to issue shares of
the preference stock in one or more series, and in connection with such
issuance, to establish the relative rights, preferences, and limitations of
each such series. Prior to the reclassification the holders of Class A Common
Stock had limited voting rights compared with the holders of Class B Common
Stock. The holders of the Class A Common Stock were entitled to elect, voting
as a separate class, up to 25% (rounded up to the nearest whole number) of the
entire Board of Directors of BancGroup, and the holders of the Class B Common
Stock were entitled to elect the remaining directors. On all other matters
coming before the stockholders of BancGroup, except matters for which Delaware
law requires a class vote, the holders of the Class A Common Stock were
entitled to one twentieth (1/20) of one (1) vote per share and the holders of
the Class B Common Stock were entitled to one (1) vote per share. Stockholders
of BancGroup may not act by written consent or call special meetings.
At the option of the holder of record, and subject to adjustment to
avoid dilution in the event of certain occurrences, each share of BancGroup
Class B Common Stock was convertible at any time into one share of Class A
Common Stock. Shares of Class A Common Stock were not convertible into any
other securities of BancGroup.
11. REGULATORY MATTERS AND 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
$104 million of retained earnings plus certain 1997 earnings would be
available for distribution to BancGroup, from its subsidiaries, as dividends
in 1997 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, 1996, these deposits totaled $22.9
million.
BancGroup and its subsidiary banks are subject to various regulatory
capital requirements administered by federal and state banking agencies.
Failure to meet minimum capital requirements can initiate certain mandatory-and
possibly additional discretionary-actions by regulators that, if undertaken,
could have a direct material effect on BancGroup's financial position. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, BancGroup and its subsidiary banks must meet specific capital
guidelines that involve quantitative measures of assets, liabilities, and
certain off-balance-sheet items as calculated under regulatory accounting
practices. BancGroup's and its subsidiary banks' capital amounts and classi-
fication are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require BancGroup and its subsidiary banks to maintain minimum amounts
and ratios (set forth in the table below) of total and Tier I (as defined in
the regulations) to risk-weighted assets (as defined) and of Tier I Capital
(as defined) to average assets (as defined). Management believes, as of
December 31, 1996 and 1995, that BancGroup and its subsidiary banks meet all
capital adequacy requirements to which they are subject.
As of December 31, 1996, the most recent notification from the Federal
Deposit Insurance Corporation categorized BancGroup's subsidiary banks as well
capitalized under the regulatory framework for prompt corrective action. To be
categorized as well capitalized BancGroup and its subsidiary banks must
maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios
as set forth in the table. There are no conditions or events since that
notification that management believes have changed BancGroup's category.
Actual capital amounts and ratios for BancGroup and it significant
bank subsidiaries are also presented in the following table:
marquis
<TABLE>
<CAPTION>
TO BE WELL CAPITALIZED
FOR CAPITAL UNDER PROMPT CORRECTIVE
(In Thousands) ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
==================================================================================================================
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
==================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1996
Total Capital (to Risk Weighted Assets)
Consolidated $362,605 10.46% $277,374 >8.0% $346,718 >10.0%
- -
Colonial Bank Alabama 305,015 10.47% 233,112 >8.0% 291,391 >10.0%
- -
Colonial Bank Florida 20,680 10.01% 16,534 >8.0% 20,668 >10.0%
- -
Colonial Bank Georgia 39,139 11.53% 27,150 >8.0% 33,937 >10.0%
- -
Tier I Capital (to Risk Weighted Assets)
Consolidated 312,056 9.00% 138,687 >4.0% 208,031 > 6.0%
- -
Colonial Bank Alabama 268,349 9.21% 116,556 >4.0% 174,834 > 6.0%
- -
Colonial Bank Florida 18,722 9.06% 8,267 >4.0% 12,401 > 6.0%
- -
Colonial Bank Georgia 34,870 10.27% 13,575 >4.0% 20,362 > 6.0%
- -
Total I Capital (to average assets)
Consolidated 312,056 6.61% 188,771 >4.0% 235,963 > 5.0%
- -
Colonial Bank Alabama 268,349 6.65% 161,418 >4.0% 201,772 > 5.0%
- -
Colonial Bank Florida 18,722 6.57% 11,391 >4.0% 14,239 > 5.0%
- -
Colonial Bank Georgia 34,870 7.06% 19,768 >4.0% 24,710 > 5.0%
- -
AS OF DECEMBER 31, 1995
Total Capital (to Risk Weighted Assets)
Consolidated $312,433 10.71% $233,274 >8.0% $291,593 >10.0%
- -
Colonial Bank Alabama 263,380 10.81% 194,981 >8.0% 243,726 >10.0%
- -
Colonial Bank Florida 16,271 9.72% 13,398 >8.0% 16,748 >10.0%
- -
Colonial Bank Georgia 34,296 12.61% 21,759 >8.0% 27,199 >10.0%
- -
Tier I Capital (to Risk Weighted Assets)
Consolidated 258,857 8.88% 116,637 >4.0% 174,956 > 6.0%
- -
Colonial Bank Alabama 232,856 9.55% 97,490 >4.0% 146,236 > 6.0%
- -
Colonial Bank Florida 14,313 8.55% 6,699 >4.0% 10,049 > 6.0%
- -
Colonial Bank Georgia 31,473 11.57% 10,880 >4.0% 16,319 > 6.0%
- -
Tier I Capital (to average assets)
Consolidated 258,857 7.15% 144,810 >4.0% 181,013 > 5.0%
- -
Colonial Bank Alabama 232,856 6.87% 135,498 >4.0% 169,373 > 5.0%
- -
Colonial Bank Florida 14,313 6.54% 8,753 >4.0% 10,941 > 5.0%
- -
Colonial Bank Georgia 31,483 9.42% 13,367 >4.0% 16,708 > 5.0%
- -
</TABLE>
56 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
<PAGE> 44
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, 1996 were as
follows:
<TABLE>
<CAPTION>
(In thousands)
=====================================
<S> <C>
1997 $ 5,133
1998 4,245
1999 3,714
2000 3,357
2001 2,040
Thereafter 8,376
- -------------------------------------
Total $26,865
=====================================
</TABLE>
Rent expense for all leases amounted to $7,050,000 in 1996, $6,175,000
in 1995 and $5,104,000 in 1994.
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 7.75% for 1996,
7.25% for 1995 and 8.5% for 1994. The rate of increase in future compensation
levels was 4.75% for 1996, 4.00% for 1995 and 5.00% for 1994. The expected
long-term rate of return on assets was 9% for 1996, 1995, and 1994.
Employee pension benefit plan status at December 31:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
============================================================================
<S> <C> <C>
Actuarial present value of benefit
obligations:
Accumulated benefit obligation $ 8,623 $ 10,211
Vested benefit obligation $ 8,191 $ 9,244
Projected benefit obligation for
service rendered to date $ 13,279 $ 13,811
Plan assets at fair value $ 13,729 $ 11,567
- ----------------------------------------------------------------------------
Plan assets over/(under) projected
benefit obligation 450 (2,244)
Unrecognized net gain from past
experience different from that
assumed and effects of changes
in assumptions (2,549) (716)
Unrecognized prior service cost 62 66
Unrecognized net asset at
January, 1986 being recognized
over 19 years (45) (38)
- ----------------------------------------------------------------------------
Accrued pension cost $ (2,082) $ (2,932)
============================================================================
</TABLE>
<TABLE>
<CAPTION>
(In thousands) 1996 1995 1994
=========================================================================================
<S> <C> <C> <C>
Net pension cost included the
following components:
Service cost $ 1,099 $ 873 $ 849
Interest cost 1,029 962 619
Actual return on plan assets (1,463) (851) (614)
Net amortization and deferral 405 (6) (27)
- -----------------------------------------------------------------------------------------
Net pension cost $ 1,070 $ 978 $ 827
=========================================================================================
</TABLE>
At December 31, 1996 and 1995, the pension plan assets included
investments of 45,260 and 59,874 shares of BancGroup Common Stock representing
7% of pension plan assets for both years. At December 31, 1996, BancGroup
Common Stock included in pension plan assets had a cost and market value of
$383,488 and $905,200, respectively. Pension plan assets are distributed
approximately 10% in U.S. Government and agency issues, 26% in Corporate bonds
and 48% in equity securities (including BancGroup Common Stock) and 16% in money
market funds.
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
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 57
<PAGE> 45
plan and similar plans of combined banks amounted to $850,000, $772,000 and
$606,000 for 1996, 1995 and 1994, 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, 1996 and 1995,
704,872 and 977,038 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, 1996 and 1995, 1,475,500 and 1,565,500 shares, respectively
remained available for the granting of options under the 1992 Nonqualified
Plan.
Prior to 1992, BancGroup had both a qualified incentive stock option
plan ("Plan") under which options were granted at a price not less than fair
market value and a nonqualified stock option plan ("Nonqualified Plan") under
which options were granted at a price not less than 85% of fair market value.
All options under the plans expire ten years from the date of grant, or three
months after the employee's termination. Although options previously granted
under these plans may be exercised, no further options may be granted.
Pursuant to the SBC and CBG combinations, BancGroup assumed qualified
stock options and non-qualified stock options in exchange for existing officers
and directors and other stock options according to the respective exchange
ratios.
Certain of the options issued during 1996 under the 1992 Nonqualified
Plan and the 1992 Plan have vesting requirements. The option recipients are
required to remain in the employment of BancGroup (subject to certain
exemptions) for periods of between one and five years to fully vest in the
options granted. The five year vesting options become exercisable on a pro-rata
basis for five years.
Following is a summary of the transactions in Common Stock under these
plans for the years ended December 31, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
============================================================================================================================
Qualified Plans Nonqualified Plans
- ----------------------------------------------------------------------------------------------------------------------------
Weighted Average Weighted Average
Shares Exercise Price Shares Exercise Price
============================================================================================================================
<S> <C> <C> <C> <C>
Outstanding at December 31, 1993 321,796 $ 4.849 1,478,700 $ 5.163
Granted (at $5.74 per share) -- -- 126,182 5.740
Exercised (at $2.125-$6.50 per share) (104,156) 5.478 (30,000) 3.684
- ----------------------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 1994 217,640 4.532 1,574,882 5.269
Granted (at $8.445-$9.94 per share) 7,500 9.940 36,862 8.858
Exercised (at $3.08-$8.74 per share) (67,038) 3.741 (28,730) 3.391
- ----------------------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 1995 158,102 5.068 1,583,014 5.423
Granted (at $14.580-$19.94 per share) 292,166 17.895 90,000 14.714
Exercised (at $3.08-$9.12 per share) (22,354) 5.837 (406,778) 5.849
- ----------------------------------------------------------------------------------------------------------------------------
Outstanding at
December 31, 1996 427,914 $ 13.786 1,266,236 $ 6.084
===========================================================================================================================
</TABLE>
58 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
<PAGE> 46
At December 31, 1996, the total shares outstanding and exercisable
under these option plans were as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
=========================================================================== ==========================================
WEIGHTED
AVERAGE WEIGHTED
NUMBER REMAINING AVERAGE AGGREGATE NUMBER AVERAGE AGGREGATE
RANGE OF OUTSTANDING CONTRACTUAL EXERCISE OPTION EXERCISABLE EXERCISE OPTION
EXERCISE PRICES AT 12/31/96 LIFE PRICE PRICE AT 12/31/96 PRICE PRICE
- --------------------------------------------------------------------------- ------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$3.08-$3.19 278,776 3.96 years $ 3.088 $ 860,831 278,776 $ 3.088 $ 860,831
$3.625-$3.88 497,396 4.80 years 3.817 1,898,470 497,396 3.817 1,898,470
$4.31-$8.445 214,692 7.16 years 6.268 1,345,723 214,692 6.268 1,345,723
$9.12-$9.94 321,120 4.10 years 9.170 2,944,755 321,120 9.170 2,944,755
$14.715-$17.155 308,166 10.47 years 16.488 5,081,093 179,000 16.021 2,867,825
$19.53-$19.94 74,000 10.97 years 19.885 1,471,460 -- N/A --
- --------------------------------------------------------------------------- ------------------------------------------
Total 1,694,150 6.11 years $ 8.029 $13,602,332 1,490,984 $ 6.652 $ 9,917,604
=========================================================================== ==========================================
</TABLE>
On January 1, 1996 BancGroup adopted Statement of Financial Accounting
Standards No. 123, "Accounting for Stock Based Compensation" (SFAS 123). As
permitted by SFAS 123, BancGroup has chosen to apply APB Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related Interpretations
in accounting for its Plans. Accordingly, no compensation cost has been
recognized for options granted under the Incentive Plan. For the Nonqualified
Plan, compensation expense is recognized for the difference between exercise
price and fair market value of the shares at date of issue. Had compensation
cost for BancGroup's Plans been determined based on the fair value at the grant
dates for awards under the Plan consistent with the method of SFAS 123,
BancGroup's net income and net income per share would have been reduced to the
pro forma amounts indicated below:
<TABLE>
<CAPTION>
As Pro
Reported Forma
=======================================================
1996
----
<S> <C> <C>
Net income $53,608 $ 52,603
Earnings Per Share(Primary) $ 1.62 $ 1.59
1995
----
Net income $41,553 $ 41,349
Earnings Per Share(Primary) $ 1.32 $ 1.31
1994
----
Net income $29,741 $ 29,660
Earnings Per Share(Primary) $ 1.00 $ 1.00
=======================================================
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 1996, 1995, and 1994,
respectively; dividend yield of 3.15%, 4.98% and 6.97%; expected volatility of
34% for all years; risk-free interest rates of 6.04%, 6.63% and 7.77%;
and expected lives of ten years. The weighted average fair values of
options granted during 1996, 1995 and 1994 was $6.51, $4.78 and $5.35,
respectively.
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 their election annually. 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 1996, 1995 and 1994, respectively, 31,710, 34,048 and 28,534
shares of Common Stock were issued under the Directors Plan, representing
approximately $328,000, $326,000 and $284,000 in directors' fees for 1996, 1995
and 1994, 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 99,640 shares outstanding of which
10,520 shares were vested at December 31, 1996.
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 22,706 shares issued
and outstanding under this Plan at December 31, 1996.
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 59
<PAGE> 47
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,
1996, will have a materially adverse effect on BancGroup's financial
statements.
16. RELATED PARTIES
Most of the insurance coverage for 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 $1,651,000, $1,712,000 and $2,242,000 in 1996, 1995 and 1994,
respectively.
BancGroup, Colonial Bank and CMC 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 $3,252,000, $3,100,000 and $2,300,000 in 1996, 1995 and
1994, respectively.
During 1996, 1995 and 1994, BancGroup and its subsidiaries paid or
accrued fees of approximately $1,475,000, $1,306,000 and $1,326,000,
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 amounts were included in Other Expense:
<TABLE>
<CAPTION>
(In thousands) 1996 1995 1994
=====================================================================
<S> <C> <C> <C>
Stationery, printing,
and supplies $ 3,469 $ 3,080 $ 3,084
Postage 2,241 1,901 1,682
Telephone 4,284 3,429 2,915
Insurance 1,404 1,417 1,690
Legal fees 2,778 2,232 2,949
Advertising and
public relations 5,029 3,796 2,736
FDIC assessment 2,231 3,767 5,293
Other 25,346 23,149 18,587
- ---------------------------------------------------------------------
Total $ 46,782 $ 42,771 $ 38,936
=====================================================================
</TABLE>
18. INCOME TAXES
The components of income taxes were as follows:
<TABLE>
<CAPTION>
(In thousands) 1996 1995 1994
=====================================================================
<S> <C> <C> <C>
Currently payable:
Federal $ 28,175 $ 23,265 $ 16,961
State 2,391 2,200 1,229
Deferred (1,103) (2,225) (2,361)
- ---------------------------------------------------------------------
Total $ 29,463 $ 23,240 $ 15,829
=====================================================================
</TABLE>
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) 1996 1995 1994
=====================================================================
<S> <C> <C> <C>
Tax at statutory rate
on income from
operations $ 29,075 $ 22,627 $ 15,911
Add:
State income taxes, net
of federal tax benefit 2,131 1,453 829
Amortization of net
purchase accounting
adjustments 369 237 465
Other 441 871 261
- ---------------------------------------------------------------------
Total 32,016 25,188 17,466
=====================================================================
Deduct:
Nontaxable interest
income 2,537 1,696 1,404
Dividends received
deduction 16 252 233
- ---------------------------------------------------------------------
Total 2,553 1,948 1,637
- ---------------------------------------------------------------------
TOTAL INCOME TAXES $ 29,463 $ 23,240 $ 15,829
=====================================================================
</TABLE>
60 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
<PAGE> 48
The components of BancGroup's net deferred tax asset as of December
31, 1996 and 1995, were as follows:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
===========================================================================
<S> <C> <C>
Deferred tax assets:
Allowance for possible loan
losses $16,984 $15,294
Pension accrual in excess
of contributions 952 755
Accumulated amortization of
mortgage servicing rights 2,384 2,869
Acquisition related accruals -- 547
Other real estate owned
writedowns 1,182 1,394
Other liabilities and reserves 1,556 1,514
Deferred loan fees, net 3 408
Accelerated tax depreciation 292 --
Other 1,082 2,132
- -------------------------------------------------------------------
Total deferred tax asset 24,435 24,913
===================================================================
Deferred tax liabilities:
Accelerated tax depreciation -- 368
Cumulative accretion/discount
on bonds 428 510
Differences between financial
reporting and tax bases of net
assets acquired 647 1,124
Stock dividends received 2,106 1,449
Prepaid FDIC assessment 1 407
Loan loss reserve recapture 1,779 2,248
Unrealized gain on securities
available for sale 399 362
Other 1,125 1,561
- -------------------------------------------------------------------
Total deferred tax liability 6,485 8,029
===================================================================
Net deferred tax asset $17,950 $16,884
===================================================================
</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 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, 1996 and 1995. 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, 1996 and 1995.
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 61
<PAGE> 49
The estimated fair values of BancGroup's financial instruments at
December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
=====================================================
CARRYING FAIR Carrying Fair
(In thousands) AMOUNT VALUE Amount Value
========================================================================================
<S> <C> <C> <C> <C>
Financial assets:
Cash and short-term investments $ 204,278 $ 204,278 $ 201,283 $ 201,283
Securities available for sale 306,835 306,835 214,293 214,293
Investment securities 275,800 277,858 283,995 287,314
Mortgage loans held for sale 157,433 159,527 110,486 111,952
Mortgage servicing rights and
excess servicing fees 107,797 152,064 88,165 130,156
Loans 3,680,445 3,175,506
Less: allowance for loan losses (45,170) (41,490)
- ----------------------------------------------------------------------------------------
Loans, net 3,635,245 3,683,687 3,134,016 3,178,115
- ----------------------------------------------------------------------------------------
Total $ 4,687,418 $4,784,349 $ 4,032,238 $4,127,753
========================================================================================
Financial liabilities:
Deposits $ 3,583,669 $3,589,761 $ 3,204,260 $3,208,544
Short-term borrowings 832,529 832,529 597,256 597,256
Long-term debt 37,667 40,656 46,263 53,600
- ----------------------------------------------------------------------------------------
Total $ 4,453,865 $4,462,946 $ 3,847,779 $3,859,400
========================================================================================
</TABLE>
20. CONDENSED FINANCIAL INFORMATION
OF THE COLONIAL BANCGROUP, INC.
(PARENT COMPANY ONLY)
STATEMENT OF CONDITION
<TABLE>
<CAPTION>
December 31
- ---------------------------------------------------------------------------
(In thousands) 1996 1995
===========================================================================
<S> <C> <C>
ASSETS:
Cash* $ 1,061 $ 4,043
Investment in subsidiaries* 359,338 314,883
Intangible assets 3,224 3,642
Other assets 3,915 3,923
- ---------------------------------------------------------------------------
Total assets $ 367,538 $ 326,491
===========================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY:
Short-term borrowings $ 1,033 $ 1,000
Subordinated debt 7,187 17,120
Other long-term debt 14,116 16,499
Other liabilities 2,020 2,409
Shareholders' equity 343,182 289,463
- ---------------------------------------------------------------------------
Total liabilities and
shareholders' equity $ 367,538 $ 326,491
===========================================================================
</TABLE>
*Eliminated in consolidation.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31
- ----------------------------------------------------------------------
(In thousands) 1996 1995 1994
======================================================================
<S> <C> <C> <C>
INCOME:
Cash dividends from
subsidiaries* $ 14,411 $ 13,449 $ 12,027
Interest and dividends
on short-term investments* 47 84 81
Other income 1,444 1,054 1,062
- ----------------------------------------------------------------------
Total income 15,902 14,587 13,170
======================================================================
EXPENSES:
Interest 1,818 2,616 2,486
Salaries and
employee benefits 1,528 754 928
Occupancy expense 321 298 293
Furniture and
equipment expense 96 73 111
Amortization of
intangible assets 406 406 406
Other expenses 4,811 3,381 3,915
- ----------------------------------------------------------------------
Total expenses 8,980 7,528 8,139
======================================================================
Income before income taxes,
extraordinary item and
equity in undistributed
net income of subsidiaries 6,922 7,059 5,031
Income tax benefit 2,435 2,007 2,238
- ----------------------------------------------------------------------
Income before equity in
undistributed net
income of subsidiaries 9,357 9,066 7,269
Equity in undistributed
net income of subsidiaries* 44,251 32,487 22,472
- ----------------------------------------------------------------------
Net income $ 53,608 $ 41,553 $ 29,741
======================================================================
</TABLE>
*Eliminated in consolidation.
62 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
<PAGE> 50
20. CONDENSED FINANCIAL INFORMATION
OF THE COLONIAL BANCGROUP, INC.
(continued) (PARENT COMPANY ONLY)
<TABLE>
<CAPTION>
STATEMENT OF CASH FLOWS
Years Ended December 31
(In thousands) 1996 1995 1994
======================================================================
<S> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income $ 53,608 $ 41,553 $ 29,741
Adjustments to
reconcile net income
to net cash provided by
operating activities:
Gain on sale of assets -- -- (7)
Depreciation, amorti-
zation, and accretion 509 629 649
Decrease (increase) in
prepaids and other
assets 8 (1,412) 180
(Decrease) increase
in accrued income
taxes (65) 3,387 (727)
(Decrease) increase
in accrued expenses (324) 930 74
Undistributed
earnings
of subsidiaries* (44,251) (32,487) (22,472)
- -----------------------------------------------------------------------
Total adjustments (44,123) (28,953) (22,303)
- -----------------------------------------------------------------------
Net cash provided by
operating activities 9,485 12,600 7,438
- -----------------------------------------------------------------------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Capital expenditures (124) (175) (343)
Proceeds from sale
of premises and
equipment -- 538 399
Net repayment (investment)
in subsidiaries* 2,692 (6,394) (5,603)
- -----------------------------------------------------------------------
Net cash provided by
(used in) investing
activities 2,568 (6,031) (5,547)
- -----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF CASH FLOWS(Continued)
Years Ended December 31
(In thousands) 1996 1995 1994
=========================================================================
<S> <C> <C> <C>
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from issuance
of long-term debt -- 6,249 --
Repayment of
long-term debt (2,350) (1,000) (2,000)
Proceeds from
issuance of
common stock 3,457 1,038 6,518
Dividends paid (16,175) (10,521) (7,432)
Other, net 33 (50) 52
- -------------------------------------------------------------------------
Net cash used in
financing activities (15,035) (4,284) (2,862)
- -------------------------------------------------------------------------
Net (decrease) increase
in cash and cash
equivalents (2,982) 2,285 (971)
Cash and cash
equivalents at
beginning of year 4,043 1,758 2,729
- -------------------------------------------------------------------------
CASH AND CASH
EQUIVALENTS AT END
OF YEAR* 1,061 $ 4,043 $ 1,758
=========================================================================
Supplemental
disclosure of cash
flow information:
Cash paid (received)
during the year for:
Interest $ 1,774 $ 2,661 $ 2,489
Income taxes (2,493) (700) (1,500)
=========================================================================
</TABLE>
*Eliminated in consolidation.
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 63
<PAGE> 51
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 1996 and 1995.
<TABLE>
<CAPTION>
SALE PRICE OF
COMMON STOCK* DIVIDENDS DECLARED
------------- ON COMMON STOCK*
HIGH LOW (PER SHARE)
======================================================================
<S> <C> <C> <C>
1996
1st Quarter
Common ........................ 18 1/4 15 $ .135
2nd Quarter
Common ....................... 18 1/16 15 5/8 .135
3rd Quarter
Common ....................... 17 15/16 15 5/8 .135
4th Quarter
Common ....................... 20 1/8 17 3/8 .135
- ----------------------------------------------------------------------
1995
1st Quarter
Class A ...................... 11 13/16 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
======================================================================
</TABLE>
VOTING SECURITIES AND SHAREHOLDERS
As of December 31, 1996 and 1995, BancGroup had outstanding
32,749,282* and 31,039,376*, respectively, shares of Common Stock, with 5,747
and 5,388 shareholders of record.
*Restated to reflect the impact of a two-for-one stock split effected
in the form of 100% stock dividend paid February 11, 1997.
64 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
<PAGE> 52
SUPPLEMENTAL INFORMATION
<PAGE> 53
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
For the years ended
December 31, 1996, 1995, 1994, 1993 and 1992
(In thousands, except per share amounts)
1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
Interest income $391,957 $327,897 $244,145 $193,026 $179,872
Interest expense 199,953 164,895 101,293 76,378 80,212
- ----------------------------------------------------------------------------------------------
Net interest income 192,004 163,002 142,852 116,648 99,660
Provision for possible loan losses 11,783 8,281 8,070 11,423 12,899
- ----------------------------------------------------------------------------------------------
Net interest income after provision for
possible loan losses 180,221 154,721 134,782 105,225 86,761
Noninterest income 70,818 59,261 52,830 49,555 44,518
Noninterest expense 171,005 144,525 136,906 119,589 105,853
SAIF special assessment(1) 3,817 -- -- -- --
- ----------------------------------------------------------------------------------------------
Income before income taxes 76,217 69,457 50,706 35,191 25,426
Applicable income taxes 26,834 24,656 16,831 10,727 6,926
- ----------------------------------------------------------------------------------------------
Income before extraordinary items
and the cumulative effect of a change in
accounting for income taxes 49,383 44,801 33,875 24,464 18,500
Extraordinary items, net of income taxes -- -- -- (396) --
Cumulative effect of a change in
accounting for income taxes -- -- -- 3,890 --
- ----------------------------------------------------------------------------------------------
Net income 49,383 44,801 33,875 27,958 18,500
==============================================================================================
Income excluding SAIF special assessment(1) $ 51,849 $ 44,801 $ 33,875 $ 27,958 $ 18,500
==============================================================================================
EARNINGS PER SHARE
Income excluding SAIF
special assessment:
Primary**(1) $ 1.36 $ 1.23 $ 0.98 $ 0.82 $ 0.70
Fully-diluted**(1) $ 1.34 $ 1.20 $ 0.97 $ 0.81 $ 0.70
Income before extraordinary items
and the cumulative effect of a change in
accounting for income taxes:
Primary** $ 1.30 $ 1.23 $ 0.98 $ 0.82 $ 0.70
Fully-diluted** $ 1.28 $ 1.20 $ 0.97 $ 0.81 $ 0.70
Net income:
Primary** $ 1.30 $ 1.23 $ 0.98 $ 0.94 $ 0.70
Fully-diluted** $ 1.28 $ 1.20 $ 0.97 $ 0.92 $ 0.70
Average shares outstanding:
Primary** 38,117 36,327 34,445 29,884 26,470
Fully-diluted** 38,977 38,199 35,979 32,069 29,186
Cash dividends per common share:
Common** $ 0.54 $ 0.3375 -- -- --
Class A** -- $ 0.1125 $ 0.40 $ 0.355 $ 0.335
Class B** -- $ 0.0625 $ 0.20 $ 0.155 $ 0.135
==============================================================================================
</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.
(1) Legislation approving a one-time special assessment to recapitalize the
Savings Association Insurance Fund ("SAIF") resulted in $3,817,000 in
expense before income taxes and $2,466,000 net of applicable income taxes
in 1996.
18 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
<PAGE> 54
<TABLE>
<CAPTION>
For the years ended
December 31, 1996, 1995, 1994, 1993 and 1992
(In thousands, except per share amounts)
1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF CONDITION DATA
At year-end:
Total assets $5,466,851 $4,773,049 $3,690,626 $3,555,476 $2,493,824
Loans, net of unearned income 4,074,633 3,521,514 2,622,181 2,182,755 1,549,316
Mortgage loans held for sale 157,966 112,203 61,556 368,515 150,835
Deposits 4,113,934 3,700,715 2,909,623 2,831,978 2,102,575
Long-term debt 39,092 47,688 86,662 57,397 22,979
Shareholders' equity 386,996 336,931 261,560 243,396 152,602
Average balances:
Total assets $5,093,410 $4,193,246 $3,535,205 $2,850,680 $2,426,537
Interest-earning assets 4,661,294 3,824,327 3,192,897 2,530,300 2,141,541
Loans, net of unearned income 3,799,947 3,007,312 2,375,396 1,710,797 1,505,114
Mortgage loans held for sale 135,135 98,785 135,046 248,502 121,820
Deposits 3,896,620 3,291,343 2,865,107 2,277,465 2,048,111
Shareholders' equity 367,075 293,651 255,861 187,322 147,980
Book value per share at year-end** $ 10.31 $ 9.41 $ 7.87 $ 7.62 $ 6.19
Tangible book value per share at year-end** $ 9.50 $ 8.57 $ 7.26 $ 7.09 $ 5.90
==========================================================================================================
SELECTED RATIOS
Income excluding SAIF
special assessment to:
Average assets(1) 1.02% 1.07% 0.96% 0.86% 0.76%
Average shareholders' equity(1) 14.12 15.26 13.24 13.06 12.50
Income before extraordinary items and the
cumulative effect of a change in accounting
for income taxes to:
Average assets 0.97 1.07 0.96 0.86 0.76
Average shareholders' equity 13.45 15.26 13.24 13.06 12.50
Net income to:
Average assets 0.97 1.07 0.96 0.98 0.76
Average shareholders' equity 13.45 15.26 13.24 14.93 12.50
Efficiency ratio(1) 64.54 64.43 69.20 71.67 72.87
Dividend payout ratio 41.54 36.59 40.82 37.77 47.86
Average equity to average total assets 7.21 7.00 7.24 6.57 6.10
Total nonperforming assets to
net loans, other real estate and repossessions 0.81 0.82 1.24 1.77 2.25
Net charge-offs to average loans 0.18 0.17 0.13 0.35 0.57
Allowance for possible loan losses to
total loans (net of unearned income) 1.25 1.28 1.56 1.62 1.54
Allowance for possible loan losses to
nonperforming loans(2) 215% 262% 240% 211% 132%
==========================================================================================================
</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.
(1) Legislation approving a one-time special assessment to recapitalize the
Savings Association Insurance Fund ("SAIF") resulted in $3,817,000 in
expense before income taxes and $2,466,000 net of applicable income taxes
in 1996.
(2) Nonperforming loans and nonperforming assets are shown as defined in
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Nonperforming Assets on page 34.
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 19
<PAGE> 55
SELECTED QUARTERLY FINANCIAL DATA
1996-1995
<TABLE>
<CAPTION>
(In thousands, except per share amounts)
1996 1995
------------------------------------ ------------------------------------
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 $102,805 $100,813 $95,902 $92,437 $91,307 $85,417 $79,973 $71,200
Interest expense 52,669 51,345 48,283 47,656 47,224 43,972 40,265 33,434
- -------------------------------------------------------------------------------------------------------
Net interest income 50,136 49,468 47,619 44,781 44,083 41,445 39,708 37,766
Provision for loan losses 5,460 2,635 1,938 1,750 3,576 1,655 1,612 1,438
- -------------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 44,676 46,833 45,681 43,031 40,507 39,790 38,096 36,328
- -------------------------------------------------------------------------------------------------------
Net income $ 6,797 $ 13,446 $15,517 $13,623 $ 9,878 $12,423 $12,527 $ 9,973
- -------------------------------------------------------------------------------------------------------
Income excluding SAIF
special assessment (1) $ 6,797 $ 15,912 $15,517 $13,623 $ 9,878 $12,423 $12,527 $ 9,973
- -------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE:
Income excluding SAIF
special assessment:
Primary**(1) $ 0.18 $ 0.41 $ 0.41 $ 0.36 $ 0.26 $ 0.36 $ 0.37 $ 0.24
Fully-diluted**(1) 0.17 0.41 0.41 0.35 0.26 0.35 0.36 0.23
Net income:
Primary** $ 0.18 $ 0.35 $ 0.41 $ 0.36 $ 0.26 $ 0.36 $ 0.37 $ 0.24
Fully-diluted** 0.17 0.35 0.41 0.35 0.26 0.35 0.36 0.23
=======================================================================================================
</TABLE>
** Restated to reflect the impact of a two-for-one stock split in the form
of a 100% stock dividend paid on February 11, 1997.
(1) Legislation approving a one-time special assessment to recapitalize the
Savings Association Insurance Fund ("SAIF") resulted in $3,817,000 in
expense before income taxes and $2,466,000 net of applicable income taxes
in 1996.
20 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
<PAGE> 56
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 January 3, 1997
and January 31, 1997 poolings of interests with Jefferson Bancorp, Inc.
("Jefferson") and D/W Bankshares, Inc. ("Bankshares"), respectively.
BACKGROUND
BancGroup (or the "Company") was established in 1981 with one bank and
$166 million in assets. Through 37 business combinations BancGroup has grown to
a $5.5 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 Mt. Vernon
Financial Corp. 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 of Georgia, Inc. ("Commercial") merger and
also moved into Florida with the merger with Southern Banking Corporation
("Southern") which is based in Orlando. In January 1997, BancGroup continued
its growth in Florida with the mergers of Jefferson (based in Miami Beach),
Tomoka Bancorp, Inc. ("Tomoka") (based in Ormond Beach) and First Family
Financial Corporation ("First Family") (based in Eustis). Also in January 1997,
expansion in Georgia continued with the merger of Bankshares into BancGroup.
In March 1997, BancGroup acquired Shamrock Holdings, Inc. ("Shamrock") in
Evergreen, Alabama. BancGroup has also entered into agreements to merge three
additional banks in Florida into BancGroup. All of the transactions are
expected to close in the second or third quarter of 1997. BancGroup's expansion
in Georgia and Florida reflects a corporate goal to establish its community
banking concept in the higher growth market areas of the Southeast. More
importantly, BancGroup's operating earnings per share have increased an average
of 17.7% per year since 1992 and in 1996 the Company achieved a 14.12% return
on average equity and a 1.02% return on average assets excluding the one-time
special assessment to recapitalize the Savings Association Insurance Fund
("SAIF").
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 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
the 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 14% during both 1996 and 1995. 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 50 largest mortgage loan servicers in
the country. BancGroup has increased residential mortgage loans 363% from
$381 million at December 31, 1992 to $1.8 billion at December 31, 1996.
The portfolio of mortgage loans has a relatively low credit risk and
provides a source of liquidity by serving as collateral for Federal Home
Loan Bank borrowings. CMC's $10.6 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 Corp., an Atlanta, Georgia based
thrift with $225 million in assets. On July 3, 1996, BancGroup merged with
Commercial, a $233 million bank in the north Atlanta area and Southern, a
$232 million bank in Orlando, Florida. On January 3, 1997, BancGroup
merged with Jefferson, a $473 million bank in Miami Beach, Florida. Also
on January 3, 1997, Tomoka, a $77 million bank in Ormond Beach, Florida,
was merged into BancGroup. On January 9, 1997, BancGroup acquired First
Family, a $167 million thrift in Eustis, Florida. On January 31, 1997,
BancGroup merged with Bankshares, a $139 million bank in Dalton, Georgia.
These business combinations provided BancGroup with a significant base of
operations in the Southeast's two fastest growing markets. In addition,
agreements to merge three other banks in Florida into BancGroup will
expand on this base and increase BancGroup's total assets in Florida to
approximately $1.4 billion.
- - COST CONTROL: An operational and organizational infrastructure
established in prior years has allowed the Company to grow significantly
and improve the efficiency
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 21
<PAGE> 57
ratio from 72.87% in 1992 to 64.54% in 1996. 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. This same structure will allow for additional
efficiencies in the recently acquired institutions which are not
reflected in the operating costs presented. 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. 1996
was the first full year that additional income was recognized due to the
implementation of several revenue enhancements consisting of 1) repriced
service charges and fees, 2) the automation of fee collection,
3) improved reporting for tracking fee collection and 4) controlling
cost by staffing efficiently in the branches.
- - 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 1996 by BancGroup's 16.5% internal
growth in loans of which 2.5% was contributed by CMC. CMC provides asset
generating sources for mortgage loans, as noted, and mortgage servicing
rights. CMC increased its mortgage servicing rights by 23.5% in 1996.
- - ASSET QUALITY: Maintaining high asset quality is at the forefront of the
Company's strategy to allow for consistent earnings growth. BancGroup'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, BancGroup completed the acquisition of First AmFed Corporation,
Huntsville, Alabama. This transaction increased total nonperforming assets
in 1993 by $12.8 million to 1.77% of loans and other real estate. This
ratio was reduced to .81% as of December 31, 1996 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 .18% of average loans in 1996 and .17% in 1995.
- - TECHNOLOGICAL ADVANCES: BancGroup is committed to increasing efficiencies
and providing better customer access to products and services through
effective utilization of technological advances. Some of the steps taken
to achieve this objective include: 1) issuance of the Colonial Check Card,
a debit card allowing customers to make purchases with funds from their
checking account, 2) establishment of telephone banking, giving customers
the capability to pay their bills and transfer funds by phone, 3) creation
of a computer banking service allowing customers to conduct banking
business from their home computers, and 4) expanded use of document
imaging for certain loan and deposit documents. Technology is always
changing, and BancGroup will continue to investigate methods of improving
customer services through product enhancement and the efficiencies that
technology provides.
- - 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 calculations 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 l996.
- --------------------------------------------------------------------------------
BUSINESS COMBINATIONS
A principal part of BancGroup's strategy is to merge other financial
institutions into BancGroup 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 business combinations with
other financial institutions. The balances reflected are as of the date of
consummation.
<TABLE>
<CAPTION>
COMPLETED ACQUISITIONS:
(Dollars in thousands)
ACCOUNTING DATE BANCGROUP TOTAL TOTAL TOTAL
FINANCIAL INSTITUTIONS TREATMENT CONSUMMATED SHARES ASSETS LOANS DEPOSITS
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Colonial Mortgage Company (AL) Pooling 02/17/95 4,545,454 $ 71,000 $ 1,675 $ 0
Brundidge Banking Company (AL) Purchase 03/31/95 532,868 56,609 31,577 46,044
Mt. Vernon Financial Corp. (GA) Purchase 10/20/95 1,043,440 217,967 192,167 156,356
Farmers & Merchants Bank (AL) Purchase 11/03/95 513,686 56,050 25,342 45,448
Commercial Bancorp of Georgia, Inc. (GA) Pooling 07/03/96 2,306,460 232,555 145,429 207,641
Southern Banking Corporation (FL) Pooling 07/03/96 2,858,494 232,461 160,864 205,602
Dothan Federal Savings Bank (AL) Purchase 07/08/96 154,690 48,366 36,497 39,931
Jefferson Bancorp, Inc. (FL) Pooling 01/03/97 3,854,952 472,732 322,857 405,836
D/W Bankshares, Inc. (GA) Pooling 01/31/97 1,016,548 138,686 71,317 124,429
</TABLE>
22 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
<PAGE> 58
In addition to the combinations shown above, BancGroup has closed or
has plans to close the following combinations. The balances reflected are as
of December 31, 1996. The following business combinations have not been
reflected in the finanical statements at December 31, 1996.
<TABLE>
<CAPTION>
PENDING ACQUISITIONS:
(Dollars in thousands)
ACCOUNTING DATE TOTAL TOTAL TOTAL
FINANCIAL INSTITUTIONS TREATMENT CONSUMMATED ASSETS LOANS DEPOSITS
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tomoka Bancorp, Inc. (FL) Pooling 01/03/97 $ 76,700 $ 51,600 $ 68,200
First Family Financial Corp. (FL) Purchase 01/09/97 167,300 117,500 156,700
Shamrock Holdings, Inc. (AL) Purchase 03/05/97 54,500 19,300 46,400
Ft. Brooke Bancorporation (FL) Pooling Pending 208,800 141,500 185,800
First Commerce Banks of Florida,
Inc. (FL) Purchase Pending* 105,900 68,200 94,700
Great Southern Bank (FL) Pooling Pending* 119,200 94,400 107,800
</TABLE>
* Definitive agreements were signed in March 1997.
The combination with CMC in 1995 was accounted for using a method of
accounting similar to a pooling-of-interests. In addition, on July 3, 1996,
BancGroup completed the mergers with Southern and Commercial. On January 3,
1997 and January 31, 1997, BancGroup completed the mergers with Jefferson and
Bankshares. 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 remaining business 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 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 1995 and 1996 cannot reasonably
be determined.
The combinations have had an impact on the comparisons of operating
results for 1995 and 1996 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 CMC. This
acquisition represents a major step in achieving several BancGroup strategic
goals. A principal initiative of BancGroup for the past several years has been
to increase fee income through establishment of additional lines of business
that provide natural extensions of existing products or services. CMC in this
regard provides an excellent fit for the following reasons:
FEE INCOME
At December 31, 1996, CMC provided servicing for approximately 132,000
customers with a total outstanding balance of $10.6 billion. The servicing
revenues from this portfolio plus other fee income from CMC provided
approximately 51% of BancGroup's noninterest income in 1996 and 1995.
CONSUMER REAL ESTATE LENDING
Through its wholesale and retail offices, CMC originated over $3.8 billion
in residential real estate loans from 1994 through 1996. 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 32 states through 6
regional offices and services 132,000 customers located in 37 states and the
District of Columbia. 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, and Tallahassee.
CAPITAL UTILIZATION
BancGroup provides a capital base for the expansion of CMC's low cost
servicing operation through bulk purchases of servicing. During 1995 and 1996,
CMC acquired a total of $2.2 in bulk 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 $152 million and $121 million
in 1996 and 1995, respectively. These balances represent 5% of the 13% increase
in average noninterest bearing demand deposits from 1995 to 1996. These
balances have a positive impact on
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 23
<PAGE> 59
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 26 years. In addition, Ronnie Wynn has been the President of CMC for
20 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.
<TABLE>
<CAPTION>
REVIEW OF RESULTS OF OPERATIONS
OVERVIEW
The major components of BancGroup's net income are:
(In thousands) 1996 1995 1994
-----------------------------------------------------------------------
<S> <C> <C> <C>
Net interest income $ 192,004 $163,002 $142,852
Provision for possible
loan losses (11,783) (8,281) (8,070)
Noninterest income 70,818 59,261 52,830
Noninterest expense 174,822 144,525 136,906
Pretax income 76,217 69,457 50,706
Taxes (26,834) (24,656) (16,831)
-----------------------------------------------------------------------
Net income 49,383 44,801 33,875
SAIF assessment, net of taxes 2,466 -- --
-----------------------------------------------------------------------
Income excluding SAIF $51,849 $44,801 $33,875
=======================================================================
</TABLE>
Consistently increasing net income is a primary goal of management.
Operating earnings (income before extraordinary items, accounting changes and
SAIF special assessment) increased 16% in 1996, 32% in 1995 and 38% in 1994.
The most significant factors affecting income for 1996, 1995 and 1994 are
highlighted below and discussed in greater detail in subsequent sections.
- - An increase in 1996 of 21.9% in average earning assets.
This follows an increase of 19.8% in 1995.
- - An increase of $11.6 million (20%) and $6.4 million (12%)
in noninterest income in 1996 and 1995, respectively.
- - Maintenance of high asset quality and reserve coverage
ratios. Net charge-offs were $6.9 million or .18% of average
net loans in 1996 and $5.2 million or .17% of average net
loans in 1995.
- - Loan growth, excluding acquisitions, of 16.5% in 1996 following
an increase of 24.8% in 1995.
- - An increase in average loans as a percent of average earning
assets to 81.5% in 1996 from 78.6% in 1995.
- - Noninterest expenses as a percent of average assets were
reduced to 3.36% in 1996 from 3.45% in 1995.
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 4.16% in 1996 compared to 4.32% in 1995 and 4.54%
in 1994. Over this period net interest income on a fully tax equivalent basis
increased to $194 million in 1996 from $165 million in 1995 and $145 million in
1994. The principal factors affecting the Company's yields and net interest
income are discussed in the following paragraphs.
LEVELS OF INTEREST RATES
In 1995 and 1996 rates remained fairly constant resulting in little impact
on interest spreads or margins. Short-term rates increased throughout 1994 and
continued to increase into late 1995 before starting to decline and leveling
off in 1996. For example, the average fed funds rate for overnight bank
borrowings was 5.45% in December 1994, reached 6.00% midyear 1995 before
decreasing to 5.95% in December 1995 and has remained at 5.25% since February
1996. The Company's prime rate increased from 8.5% in December 1994 to 9%
midyear 1995 before declining to 8.5% in December 1995 and to 8.25% in
February 1996 where it remained the rest of the year.
ACQUISITIONS
The thrift acquisitions completed during 1995 and 1996 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.
24 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
<PAGE> 60
INTEREST-EARNING ASSETS
- - GROWTH IN EARNING ASSETS
One of the most significant factors in the Company's increase in income for
1996 has been the 21.9% increase in average interest-earning assets. This
follows a 19.8% increase in 1995. In addition and equally significant,
average net loans increased $793 million (26%) from December 31, 1995 to
December 31, 1996. Earning assets as a percentage of total average assets
also increased from 90.3% in 1994 to 91.2% in 1995 to 91.5% in 1996.
- - MORTGAGE LOANS HELD FOR SALE
The level and direction of long-term interest rates has a dramatic impact on
the volume of mortgage loan originations from new construction and
refinancings. Fluctuation in these rates from 1994 to 1996 resulted in a
decline in average mortgage loans held for sale from $135 million in 1994 to
$99 million in 1995 and a subsequent increase to $135 million in 1996.
Mortgage loans held for sale represent single family residential mortgage
loans originated or acquired by CMC then packaged and sold in the secondary
market. CMC incurs gains or losses associated with rate fluctuations. CMC
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.
- - LOAN MIX
During 1996 loans increased in all categories. The mix of loans remained
relatively constant. Residential real estate loans continue to be the largest
concentration at 43.3% and 43.0% of total loans at December 31, 1996 and
1995, respectively. These loans are predominantly adjustable rate mortgages
which have a low level of credit risk and accordingly have lower yields than
other loans.
INTEREST-BEARING LIABILITIES
- - COST OF FUNDS
The significant loan growth in 1995 and 1996 has been more rapid than
BancGroup's growth in low cost deposits resulting in the funding of a portion
of this growth with higher cost funds. This factor has been most responsible
for the decline in net interest yield from 1995 to 1996. As discussed under
Liquidity and Interest Sensitivity, BancGroup's source of funds are
considered adequate to fund future loan growth.
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 continued in 1996, although rates declined slightly. The cost
of funds averaged 3.67%, 5.05% and 5.01% in 1994, 1995 and 1996,
respectively.
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 25
<PAGE> 61
<TABLE>
<CAPTION>
AVERAGE VOLUME AND RATES
1996 1995 1994
------------------------------ ------------------------------ ------------------------------
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) $3,799,947 $338,896 8.92% $3,007,312 $278,725 9.27% $2,375,396 $198,306 8.35%
Mortgage loans held for sale 135,135 10,687 7.91 98,785 7,423 7.51 135,046 10,674 7.90
Investment securities and
securities available for sale:
Taxable 584,848 35,650 6.10 577,358 34,118 5.91 539,265 28,782 5.34
Nontaxable (2) 55,761 3,957 7.10 53,870 4,018 7.46 62,917 4,850 7.71
Equity securities (3) 30,312 2,132 7.03 30,595 2,323 7.59 36,196 2,032 5.61
- ----------------------------------------------------------- -------------------- --------------------
Total investment securities 670,921 41,739 6.22% 661,823 40,459 6.11% 638,378 35,664 5.59%
Federal funds sold and
securities purchased under
resale agreements 50,169 2,505 4.99 52,401 3,046 5.81 37,340 1,333 3.57
Interest-earning deposits 5,122 219 4.28 4,006 293 7.31 6,737 297 4.41
- ----------------------------------------------------------- -------------------- --------------------
Total interest-earning assets 4,661,294 $394,046 8.45% 3,824,327 $329,946 8.63% 3,192,897 $246,274 7.71%
- ----------------------------------------------------------- -------------------- --------------------
Allowance for loan losses (48,619) (40,510) (36,918)
Cash and due from banks 158,922 151,715 136,621
Premises and equipment, net 82,252 62,483 59,454
Other assets 239,561 195,231 183,151
- ------------------------------------------------- ---------- ----------
TOTAL ASSETS $5,093,410 $4,193,246 $3,535,205
- ------------------------------------------------- ---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Interest-bearing liabilities:
Interest-bearing demand
deposits $659,508 $17,970 2.72% $679,948 $19,632 2.89% $736,558 $18,937 2.57%
Savings deposits 353,617 11,711 3.31 326,631 11,574 3.54 354,235 10,610 3.00
Time deposits 2,227,981 128,928 5.79 1,703,526 99,638 5.85 1,322,644 57,135 4.32
Short-term borrowings 713,912 38,673 5.42 503,578 30,226 6.00 258,235 11,119 4.31
Long-term debt 37,215 2,703 7.26 49,855 3,825 7.67 83,858 3,461 4.13
- ----------------------------------------------------------- ------------------- --------------------
Total interest-bearing liabilities 3,992,233 $199,985 5.01% 3,263,538 $164,895 5.05% 2,755,530 $101,262 3.67%
- ----------------------------------------------------------- ------------------- --------------------
Noninterest-bearing demand
deposits 655,514 581,238 451,670
Other liabilities 78,588 54,819 72,144
- ------------------------------------------------- ---------- ----------
Total liabilities 4,726,335 3,899,595 3,279,344
Shareholders' equity 367,075 293,651 255,861
- ------------------------------------------------- ---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $5,093,410 $4,193,246 $3,535,205
====================================================================================================================================
RATE DIFFERENTIAL 3.44% 3.58% 4.04%
NET INTEREST INCOME AND
NET YIELD ON INTEREST-
EARNING ASSETS (4) $194,061 4.16% $165,051 4.32% $145,012 4.54%
====================================================================================================================================
</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.
26 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
<PAGE> 62
<TABLE>
<CAPTION>
ANALYSIS OF INTEREST INCREASES (DECREASES)
1996 CHANGE FROM 1995 1995 CHANGE FROM 1994
------------------------------------------------ ----------------------------------------
ATTRIBUTED TO (1) ATTRIBUTED TO (1)
------------------------------------------------ ----------------------------------------
(In thousands) AMOUNT VOLUME RATE MIX AMOUNT VOLUME RATE MIX
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income:
Taxable securities $ 1,532 $ 443 $ 1,075 $ 14 $ 5,336 $ 2,033 $ 3,085 $ 218
Nontaxable securities (2) (61) 141 (195) (7) (832) (697) (157) 22
Dividends on preferred
stocks (3) (191) (21) (171) 1 291 (314) 716 (111)
- -----------------------------------------------------------------------------------------------------------------------------------
Total securities 1,280 563 709 8 4,795 1,022 3,644 129
Total loans (net of unearned
income) 60,171 73,463 (10,520) (2,772) 80,419 52,754 21,851 5,814
Mortgage loans held for sale 3,264 2,731 389 144 (3,251) (2,866) (526) 141
Federal funds sold and
securities purchased
under resale agreements (541) (130) (430) 19 1,713 538 838 337
Interest-earning deposits (74) 82 (122) (34) (4) (120) 196 (80)
- -----------------------------------------------------------------------------------------------------------------------------------
Total 64,100 76,709 (9,974) (2,635) 83,672 51,328 26,003 6,341
- -----------------------------------------------------------------------------------------------------------------------------------
Interest expense:
Interest-bearing demand
deposits (1,662) (590) (1,105) 33 695 (1,455) 2,329 (179)
Savings deposits 137 956 (757) (62) 964 (827) 1,942 (151)
Time deposits 29,290 30,675 (1,059) (326) 42,503 16,453 20,225 5,825
Short-term borrowings 8,447 12,625 (2,947) (1,231) 19,107 10,564 4,381 4,162
Long-term debt (1,122) (970) (204) 52 364 (1,403) 2,973 (1,206)
- -----------------------------------------------------------------------------------------------------------------------------------
Total 35,090 42,696 (6,072) (1,534) 63,633 23,332 31,850 8,451
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income $ 29,010 $34,013 $ (3,902) $(1,101) $20,039 $27,996 $(5,847) (2,110)
===================================================================================================================================
</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. Mix Change = change in
volume times change in rate.
(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 51% of its noninterest income from
mortgage banking related activities with the remaining 49% from traditional
retail banking services including various deposit account charges, safe deposit
box rentals, trust services 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 1994 through 1996 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
132,000, 118,000 and 83,000 mortgage loans with principal balances of $10.6
billion, $9.1 billion and $6.4 billion on December 31, 1996, 1995 and 1994,
respectively. This servicing portfolio generated servicing fee and late charge
income of approximately $28.1 million, $23.8 million and $22.2 million for the
years ended December 31, 1996, 1995 and 1994, respectively. CMC, through its
wholesale and retail offices, originated $1.5 billion, $1.1 billion and $1.2
billion in residential real estate loans in 1996, 1995, and 1994, respectively.
Noninterest income from deposit accounts is significantly affected by
competitive pricing on these services and the volume of noninterest-bearing
accounts. During 1996 and 1995 average noninterest-bearing demand accounts
(excluding CMC custodial deposits) increased 9.4% and 11.8%, respectively. This
increase in volume and increases in service fee rates resulted in 15%
increase in service charge income in 1996 and an 11% increase in 1995.
Other charges, fees, and commissions increased $718,000 (12%) in 1996
and $1,029,000 (20%) in 1995. The increase is primarily from credit card related
fees and official check commissions.
BancGroup, through CMC, enters into offers to extend credit for mortgage
loans to customers and into obligations to
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 27
<PAGE> 63
deliver and sell originated or acquired mortgage loans to permanent investors.
Sales of loans servicing released by CMC resulted in income of $330,000,
$988,000, and $539,000 for 1996, 1995 and 1994, respectively. A majority of the
change in other income from 1995 to 1996 is due primarily to an increase in
the gain on sale of mortgage loans held for sale of $2.6 million as well as
increases in income from safe deposit boxes, ATM transaction fees, check card
fees and income from investment sales. BancGroup has an investment sales
operation (primarily mutual funds and annuities). Fee income generated from
this and other investment service activities totaled $929,000, $649,000 and
$990,000 in 1996, 1995 and 1994, respectively. 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 1996 1995
------------------------ COMPARED COMPARED
(In thousands) 1996 1995 1994 TO 1995 % TO 1994 %
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Noninterest income:
Mortgage servicing $ 28,067 $23,787 $22,216 $ 4,280 18% $1,571 7%
Service charges on deposit
accounts 21,119 18,288 16,017 2,831 15 2,271 14
Other charges, fees, and
commissions 6,937 6,219 5,190 718 12 1.029 20
Other income 15,700 10,224 7,846 5,476 54 2,378 30
- --------------------------------------------------------------- --------
Subtotal 71,823 58,518 51,269 13,305 23 7,249 14
Other noninterest income items:
Securities gains (losses), net (1,512) 622 1,485 (2,134) (863)
Gain (loss) on disposal of other
real estate and repossessions 507 121 76 386 45
- --------------------------------------------------------------- --------
Total noninterest income $ 70,818 $59,261 $52,830 $ 11,557 20% $6,431 12%
- --------------------------------------------------------------- --------
- -------------------------------------------------------------------------------------------------
</TABLE>
NONINTEREST EXPENSE
The impact of the acquisitions completed from 1994 through 1996 is
reflected most noticeably in the increase in net interest income, discussed
previously, as well as the 21% increase from 1995 to 1996 in noninterest
expense as shown in the following schedule. The decrease in noninterest expense
as a percent of average assets from 3.87% in 1994 to 3.45% in 1995 to 3.36% in
1996 is a direct result of the increased efficiency generated by this growth.
The foundation for the efficiencies gained in 1996 and 1995 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 $2.3 million or 4% in 1995 and increased
$14.5 million or 24% in 1996. The increase in 1996 is primarily due to
increased staffing levels as a result of acquisitions and $4.3 million of
expense from Jefferson's severance plan. In addition to the increase in expenses
related to growth, advertising and public relations expenses have increased
$1,218,000 or 29% and $1,165,000 or 38% in 1996 and 1995, respectively, in
concentrated efforts to expand the Company's customer base and take advantage
of increased market share in certain key markets.
Additional expense was also incurred in the marketing of new products and
services such as the check card, telephone banking and computer banking.
Other expenses in 1996, 1995 and 1994 include approximately $2,400,000,
$1,700,000 and $1,200,000, 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 $6 million in
1994 to $10 million in 1995 and $13 million in 1996 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. 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 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 was approved in Congress
to recapitalize the SAIF with a special one-time charge of 65.7 basis
28 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
<PAGE> 64
points, after adjusting for certain allowances. This recapitalization
allows a reduction in the current .23% average annual premium rate. The
assessment resulted in a pre-tax charge of $3.8 million in 1996.
A significant number of the computer systems are not programmed to
consider the start of a new century. Some of BancGroup's systems will require
modification to process year 2000 transactions. Management is aware there will
be one-time expenses related to this transition but the amount is not readily
determinable at this time. Identification of the systems affected and the
related costs is an active 1997 project.
<TABLE>
<CAPTION>
INCREASE (DECREASE)
---------------------------------
YEARS ENDED DECEMBER 31 1996 1995
------------------------------- COMPARED COMPARED
(In thousands) 1996 1995 1994 TO 1995 % TO 1994 %
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Noninterest expense:
Salaries and employee benefits $ 73,567 $ 59,094 $ 61,437 $14,473 24% $(2,343) (4)%
Net occupancy expense 15,712 13,703 13,375 2,009 15 328 2
Furniture and equipment
expense 11,695 9,857 8,343 1,838 19 1,514 18
Amortization of mortgage
servicing rights 12,522 9,095 6,078 3,427 38 3,017 50
Amortization of intangible assets 2,065 1,525 1,353 540 35 172 13
FDIC assessment 2,233 4,318 6,277 (2,085) (48) (1,959) (31)
SAIF special assessment 3,817 -- -- 3,817 100 -- --
Stationery, printing, and supplies 4,051 3,540 3,510 511 14 30 1
Postage 2,527 2,159 1,928 368 17 231 12
Telephone 4,665 3,762 3,214 903 24 548 17
Insurance 2,373 1,722 2,059 651 38 (337) (16)
Legal fees 2,966 2,420 3,081 546 23 (661) (21)
Advertising and public relations 5,415 4,197 3,032 1,218 29 1,165 38
Other 31,214 29,133 23,219 2,080 7 5,914 25
- -------------------------------------------------------------------- ------- -------
Total noninterest expense $174,822 $144,525 $136,906 $30,296 21% $ 7,619 6%
- -------------------------------------------------------------------- ------- -------
Noninterest expense to
Average Assets 3.36%* 3.45% 3.87%
- ---------------------------------------------------------------------
* Excluding one-time SAIF special assessment
- --------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
INCOME TAXES
The provision for income taxes and related items are as follows:
Tax
Provision
---------------------------------------------
<S> <C>
1996 $26,834,000
1995 24,656,000
1994 16,831,000
</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.
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 adjusted in 1994, 1995 and 1996.
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 29
<PAGE> 65
REVIEW OF FINANCIAL CONDITION
OVERVIEW
Ending balances of selected components of the Company's balance sheet
changed from December 31, 1995 to December 31, 1996 as follows:
<TABLE>
<CAPTION>
(In thousands) Increase
Amount %
- ---------------------------------------------
<S> <C> <C>
Total assets $693,802 14.5
Securities available for sale
and investment securities 71,799 11.0
Mortgage loans held for sale 45,763 40.8
Loans, net of unearned income 553,119 15.7
Deposits 413,219 11.2
- ---------------------------------------------
</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
from 1994 through 1996 have been:
- - An increase in residential mortgage loans from 36.2% of total loans at
December 31, 1994 to 43.3% at December 31, 1996. 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 16.5% in 1996 excluding acquisitions.
- - A 12.8% increase in 1996 in average noninterest bearing demand deposits
substantially from internal growth.
- - Maintenance of high asset quality and reserve coverage of nonperforming
assets. Nonperforming assets were .81%, .82% and 1.24% of related assets
at December 31, 1996, 1995 and 1994. Net charge-offs were .18%, .17% and
.13% of average loans over the same periods. The allowance for possible
loan losses was 1.25% of loans at December 31, 1996, providing 215%
coverage of non-performing loans (nonaccrual and renegotiated).
- - An increase in the loan to deposit ratio from 90% at December 31, 1994 to
99% at December 31, 1996. Federal Home Loan Bank borrowings continue to be
a major source of funding allowing the Company greater funding
flexibility.
- - Increase of $46 million in mortgage loans held for sale during 1996.
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. 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 43.3% of total loans. These loans are substantially all
mortgages on single-family, owner occupied properties and therefore have
minimal credit risk. While a portion of these loans were acquired through
acquisitions, the Company has continued to grow this portfolio with a $250
million or 16.5% increase in these loans in 1996. BancGroup securitized
approximately $88 million of residential mortgage loans during 1996.
Excluding this securitization, residential real estate loans increased
$338 million or 22.3%. Residential mortgage loans are predominately
adjustable rate loans and therefore have not resulted in any material
change in the Company's rate sensitivity.
- - BancGroup also has a significant concentration in loans collateralized by
commercial real estate with loan balances of $983,673,000, $844,460,000,
$743,331,000, $616,424,000 and $495,650,000 at December 31, 1996, 1995,
1994, 1993 and 1992, 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 region. The Alabama economy
experiences a generally slow but steady rate of growth, while Georgia and
Florida are experiencing higher rates of growth. For this reason, real
estate values in Alabama have not been inflated due to excessive
speculation. BancGroup's lending areas in Georgia and Florida,
have not experienced inflated real estate values due to excessive
inflation. BancGroup's real estate related loans continue to perform
at acceptable levels.
- - BancGroup holds 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 $157,966,000, $112,203,000, and $61,556,000,
at December 31, 1996, 1995, and 1994, respectively. There is minimal
credit risk associated with these loans. The decrease in mortgage loans
held for sale during 1994 and subsequent increases in 1995 and 1996 are
directly related to the fluctuation in long-term interest rates and its
related
30 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
<PAGE> 66
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 16.5% in 1996, 24.8% in 1995, 20.5% in 1994,
and 10.6% in 1993, excluding acquisitions.
<TABLE>
<CAPTION>
==============================================================================================================
GROSS LOANS BY CATEGORY
(In thousands) DECEMBER 31
- --------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
==============================================================================================================
<S> <C> <C> <C> <C> <C>
Commercial, financial, and agricultural $560,824 $509,526 $ 439,556 $362,165 $326,463
Real estate--commercial 983,673 844,460 743,331 616,424 495,650
Real estate--construction 446,288 370,442 243,217 179,123 135,021
Real estate--residential 1,767,003 1,516,512 951,877 810,077 381,387
Installment and consumer 264,307 236,834 204,433 181,500 172,336
Other 55,883 48,231 44,599 36,803 43,699
- --------------------------------------------------------------------------------------------------------------
Total loans $4,077,978 $3,526,005 $2,627,013 $2,186,092 $1,554,556
==============================================================================================================
==============================================================================================================
Percent of loans in each category to total loans:
Commercial, financial, and agricultural 13.8% 14.5% 16.7% 16.6% 21.0%
Real estate--commercial 24.1 23.9 28.3 28.2 31.9
Real estate--construction 10.9 10.5 9.3 8.2 8.7
Real estate--residential 43.3 43.0 36.2 37.0 24.5
Installment and consumer 6.5 6.7 7.8 8.3 11.1
Other 1.4 1.4 1.7 1.7 2.8
- --------------------------------------------------------------------------------------------------------------
100.0% 100.0% 100.0% 100.0% 100.0%
==============================================================================================================
</TABLE>
As discussed in a subsequent section, BancGroup seeks to maintain adequate
liquidity and minimize exposure to interest rate volatility. The goals of
BancGroup with respect to loan maturities and rate sensitivity have been and
will continue to be to focus on shorter term maturities and floating or
adjustable rate loans.
At December 31, 1996, approximately 57.8% 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.
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 31
<PAGE> 67
<TABLE>
<CAPTION>
LOAN MATURITY/RATE SENSITIVITY
(In thousands) DECEMBER 31, 1996
===================================================================================================================
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 $ 280,052 $ 216,462 $ 64,310 $ 246,786 $ 314,038 $ 179,716 $ 101,056
Real estate--commercial 212,721 489,568 281,384 530,594 453,079 444,778 326,174
Real estate--construction 303,886 119,269 23,133 111,141 335,147 41,410 100,992
Real estate--residential 158,316 242,382 1,366,305 542,425 1,224,578 458,562 1,150,125
Installment and consumer 81,073 167,202 16,032 249,003 15,304 180,218 3,016
Other 11,326 9,561 34,996 41,596 14,287 35,971 8,586
- -------------------------------------------------------------------------------------------------------------------
Total loans $1,047,374 $1,244,444 $1,786,160 $1,721,545 $2,356,433 $1,340,655 $1,689,949
===================================================================================================================
</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 1996 the ratio of net charge-offs to average loans increased to
.18% from .17% in 1995. This increase has been impacted by the increase in
average loans and also by an increase of approximately $1.7 million in actual
net charge-offs. The increase in net charge-offs in 1996 is primarily due to
the partial charge-off of seven large credits in different geographic
locations. As a result of the Company's localized lending strategies and early
identification of potential problem loans, BancGroup's net charge-offs have
been consistently low. In addition, the current concentration of loans in
residential real estate loans has had a favorable impact on net charge-offs.
The following schedule 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
been on establishing reserves related to an earlier identification of potential
problem loans. 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.
32 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
<PAGE> 68
<TABLE>
<CAPTION>
SUMMARY OF LOAN LOSS EXPERIENCE
(IN THOUSANDS) YEARS ENDED DECEMBER 31
- ---------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
=========================================================================================================
<S> <C> <C> <C> <C> <C>
Allowance for possible loan losses--
January 1 $ 45,215 $ 40,965 $ 35,428 $ 23,791 $ 19,421
Charge-offs:
Commercial, financial, and agricultural 3,078 3,314 2,766 4,119 5,034
Real estate--commercial 1,941 1,165 1,605 938 1,635
Real estate--construction 1,774 44 2 957 7
Real estate--residential 837 421 419 569 742
Installment and consumer 3,281 2,726 1,809 2,052 3,261
Other 594 163 168 7 83
- ---------------------------------------------------------------------------------------------------------
Total charge-offs 11,505 7,833 6,769 8,642 10,762
- ---------------------------------------------------------------------------------------------------------
Recoveries:
Commercial, financial, and agricultural 1,016 1,054 1,901 810 543
Real estate--commercial 1,317 48 218 96 64
Real estate--construction 1 11 12 25 --
Real estate--residential 693 184 79 112 175
Installment and consumer 1,538 1,330 1,482 1,530 1,436
Other 85 46 43 7 15
- ---------------------------------------------------------------------------------------------------------
Total recoveries 4,650 2,673 3,735 2,580 2,233
- ---------------------------------------------------------------------------------------------------------
Net charge-offs 6,855 5,160 3,034 6,062 8,529
Addition to allowance charged to
operating expense 11,783 8,281 8,070 11,423 12,899
Allowance added from bank acquisitions 618 1,129 501 6,276 --
- ---------------------------------------------------------------------------------------------------------
Allowance for possible loan losses--
December 31 $ 50,761 $ 45,215 $ 40,965 $ 35,428 $ 23,791
=========================================================================================================
Loans (net of unearned income)
December 31 $4,074,633 $3,521,514 $2,622,181 $2,182,755 $1,549,313
Ratio of ending allowance to ending loans
(net of unearned income) 1.25% 1.28% 1.56% 1.62% 1.54%
Average loans (net of unearned income) $3,799,947 $3,007,312 $2,375,396 $1,710,797 $1,505,114
Ratio of net charge-offs to average loans
(net of unearned income) 0.18% 0.17% 0.13% 0.35% 0.57%
Allowance for loan losses as a percent
of nonperforming loans
(nonaccrual and renegotiated) 215% 262% 240% 211% 132%
=========================================================================================================
</TABLE>
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 33
<PAGE> 69
NONPERFORMING ASSETS
BancGroup classifies problem loans into four categories: nonaccrual, past
due, renegotiated and other potential problems. When management determines a
loan no longer meets the criteria for performing loans and collection of
interest appears doubtful, the loan is placed on nonaccrual status. All loans
that are 90 days past due are considered nonaccrual unless they are adequately
collateralized, they are in the process of collection, and there is reasonable
assurance of full collection of principal and interest. BancGroup's policy is
also to charge off installment loans 120 days past due unless they are in the
process of foreclosure and are adequately collateralized. Management closely
monitors all loans which are contractually 90 days past due, renegotiated or
nonaccrual. These loans are summarized as follows:
<TABLE>
<CAPTION>
==================================================================================================
NONPERFORMING ASSETS DECEMBER 31
- --------------------------------------------------------------------------------------------------
(IN THOUSANDS) 1996 1995 1994 1993 1992
==================================================================================================
<S> <C> <C> <C> <C> <C>
Aggregate loans for which interest is
not being accrued $21,982 $15,360 $13,528 $15,302 $16,744
Aggregate loans renegotiated to
provide a reduction or deferral
of interest or principal because of
a deterioration in the financial
condition of the borrower 1,683 1,882 3,541 1,494 1,346
- --------------------------------------------------------------------------------------------------
Total nonperforming loans* 23,665 17,242 17,069 16,796 18,090
Other real estate and in-substance foreclosure 8,956 11,557 15,502 22,066 17,126
Repossessions 314 171 81 101 103
- --------------------------------------------------------------------------------------------------
Total nonperforming assets* $32,935 $28,970 $32,652 $38,963 $35,319
==================================================================================================
Aggregate loans contractually
past due 90 days for which
interest is being accrued $ 6,695 $ 2,303 $ 3,609 $ 2,230 $ 1,485
Total nonperforming loans as a
percent of net loans 0.58% 0.49% 0.65% 0.77% 1.17%
Total nonperforming assets as a
percent of net loans, other real estate
and repossessions 0.81% 0.82% 1.24% 1.77% 2.25%
Total nonaccrual, renegotiated and
past due loans as a percent of total loans 0.75% 0.56% 0.79% 0.87% 1.26%
Allowance for loan loss as a percent of
nonperforming loans (nonaccrual
and renegotiated) 215% 262% 240% 211% 132%
==================================================================================================
* 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 1.26% at December 31, 1993 compared to 1.77% 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 1.24%.
Nonaccrual loans at December 31, 1996 were $22 million compared to $15.4
million at December 31, 1995. This increase in nonaccrual loans is primarily
due to four large credits in different geographic locations.
Management, through its loan officers, internal loan review staff and
external examinations by regulatory agencies, has identified approximately $146
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
34 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
<PAGE> 70
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, 1996 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 recognized on nonaccrual loans was $800,000, $605,000,
$414,000, $93,000 and $316,000 in 1996, 1995, 1994, 1993 and 1992,
respectively. Interest income foregone on such loans was approximately
$1,428,000, $1,062,000, $1,196,000, $958,000 and $1,121,000 in 1996, 1995,
1994, 1993 and 1992, 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, 1996. See Notes
1 and 4 to the consolidated financial statements for further discussion.
<TABLE>
<CAPTION>
Carrying
(In thousands) Balance Reserve Value
=====================================================
<S> <C> <C> <C>
Commercial, financial,
and agricultural $2,927 $1,456 $ 1,471
Real Estate--Commercial 5,735 1,028 4,707
Real Estate--Construction 14,143 3,390 10,753
Real Estate--Residential 5,657 1,571 4,086
Installment and Consumer 992 397 595
-----------------------------------------------------
Total impaired loans $29,454 $7,842 $21,612
=====================================================
</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) 1996 1995 1994 1993 1992
========================================================================================================
<S> <C> <C> <C> <C> <C>
Balance at end of period applicable to:
Commercial, financial, and agricultural $10,644 $9,587 $8,989 $8,398 $6,200
Real estate--commercial 15,705 14,230 12,750 12,099 6,878
Real estate--construction 9,574 7,477 3,703 1,877 2,077
Real estate--residential 8,835 7,568 9,107 7,400 4,096
Installment and consumer 3,914 3,546 3,205 3,096 2,663
Other 2,089 2,807 3,211 2,558 1,877
- --------------------------------------------------------------------------------------------------------
Total $50,761 $45,215 $40,965 $35,428 $23,791
========================================================================================================
</TABLE>
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 35
<PAGE> 71
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, 1996
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.
- - 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. 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 and the 3-5 year
range in 1996.
- - 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, 1996 or 1995 does not include any interest-only strips and the amount
of unamortized premium on mortgage backed securities is approximately
$410,000. 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 $359 million at
December 31, 1995 to $440 million at December 31, 1996. Securitization of
residential mortgage loans represented $88 million of the increase in 1996. An
increase from $236 million at December 31, 1994 to $359 million at December 31,
1995 was partially a result of a reclassification from investment securities of
$60.5 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) 1996 1995 1994
==============================================================
<S> <C> <C> <C>
Investment securities:
U.S. Treasury securities
and obligations
of U.S.government
agencies $239,964 $229,571 $297,695
Obligations of state
and political
subdivisions 40,979 50,256 48,428
Other 1,167 11,472 29,715
-------------------------------------------------------------
Total $282,110 $291,299 $375,838
=============================================================
Securities available for sale:
U.S. Treasury securities
and obligations of U.S.
government
agencies $420,015 $337,410 $205,393
Obligations of state
and political
subdivisions 11,967 11,631 7,518
Other 8,133 10,086 22,874
-------------------------------------------------------------
Total $440,115 $359,127 $235,785
=============================================================
</TABLE>
At December 31, 1996, 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 $38.7 million.
36 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
<PAGE> 72
<TABLE>
<CAPTION>
MATURITY DISTRIBUTION OF SECURITIES
WITHIN 1 YEAR 1-5 YEARS 5-10 YEARS OVER 10 YEARS
------------------ ---------------- ---------------- ----------------
AVERAGE AVERAGE AVERAGE AVERAGE
(In thousands) AMOUNT RATE AMOUNT RATE AMOUNT RATE AMOUNT RATE
=======================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment securities:
U.S. Treasury securities
and obligations of U.S.
government agencies $ 53,691 6.13% $115,129 6.29% $ -- -- $ 500 7.25%
Mortgage-backed securities 2,625 6.64 50,991 6.79 1,396 8.16% 15,632 7.78
Obligations of state and
political subdivisions (1) 6,839 7.33 17,874 6.75 14,729 7.81 1,537 8.62
Other (2) 99 6.08 806 8.93 262 7.30 -- --
-------- -------- ------- -------
Total $ 63,254 6.28% $184,800 6.49% $16,387 7.83% $17,669 7.83%
=======================================================================================================================
Securities available for sale (3):
U.S. Treasury securities
and obligations of U.S.
government agencies $213,573 5.82%
Mortgage-backed securities 169,735 6.82
Obligations of state and political
subdivisions (1) 9,572 3.08
Other 8,105 6.90
--------
Total $400,985 6.20%
================================================================
</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) 1996 1995 1996 1995
=======================================================================================
<S> <C> <C> <C> <C>
Noninterest-bearing demand deposits $663,893 $ 616,960 16.1% 16.7%
Interest-bearing demand deposits 683,716 680,889 16.6 18.4
Savings deposits 439,902 379,352 10.7 10.2
Certificates of deposits less than $100,000 1,536,003 1,312,383 37.3 35.5
Certificates of deposits more than $100,000 513,702 464,052 12.5 12.5
IRAs 229,683 200,348 5.6 5.4
Open time deposits 47,035 46,731 1.2 1.3
- ---------------------------------------------------------------------------------------
Total deposits $4,113,934 $3,700,715 100.0% 100.0%
=======================================================================================
</TABLE>
The growth in deposits and the mix of deposits has been most significantly
impacted in 1995 and 1996 by acquisitions in late 1995 of Mt. Vernon Financial
and in mid 1996 of Dothan Federal both of which were thrifts. As such, the
level of noninterest-bearing demand deposits was less than 3% of the total
deposits acquired with the major portion of acquired deposits in certificates
of deposits. Noninterest-bearing demand deposits have increased $46.9 million
(8%) from December 31, 1995 to December 31, 1996. 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 Company 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 acquisitions 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. This expansion continued with the additional
mergers in Florida and Georgia in early 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.
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 37
<PAGE> 73
During 1995 and 1996 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 is
offered in eleven WalMart locations with ten located in Alabama and one in
Tennessee. BancGroup 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, 1996 and 1995,
$138 million and $75 million, respectively of CD's were outstanding under this
program.
SHORT-TERM BORROWINGS
Short-term borrowings were comprised of the
following at December 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
(In thousands) 1996 1995 1994
-----------------------------------------------------
<S> <C> <C> <C>
Federal funds purchased
and securities sold
under repurchase
agreements $124,245 $150,540 $171,264
Federal Home Loan
Bank borrowings 715,000 465,000 210,050
Other short-term
borrowings 2,017 1,141 1,131
-----------------------------------------------------
Total $841,262 $616,681 $382,445
=====================================================
</TABLE>
BancGroup has available Federal Funds lines from upstream banks including
the Federal Home Loan Bank (FHLB) totaling $532 million at December 31, 1996.
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 has availability of
up to $1 billion from the FHLB on either a short or long-term basis excluding
funds available through the federal funds line. CMC has an additional $118
million available through a warehouse line with FHLB that is collateralized by
mortgage loans held for sale.
Short-term borrowings, including FHLB borrowings, have been used to fund
short-term assets, primarily mortgage loans held for sale, and loans. FHLB
borrowings have been used during 1996 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 1996 the significant changes in BancGroup's cash flows
have centered around loan growth and fluctuations in mortgage loans held for
sale. Loan growth of $548 million in 1996 and $667 million in 1995 has been one
of the principal uses of cash in both years. In 1996, BancGroup securitized
approximately $88 million of residential mortgage loans and repurchased the
securities. Mortgage loans held for sale increased in 1996, using $46 million
in funds. As noted in previous sections, short-term borrowings increased $238
million in 1996 and were used to fund loan growth. Management has chosen to
fund short-term fluctuations in the volume of
38 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
<PAGE> 74
mortgage loans held for sale with short-term borrowings as opposed to
increasing rate sensitive deposits. Deposit growth of $413 million with $63
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, 1996 had $1.8
billion of residential real estate loans. These loans provide collateral for
the current $1 billion credit availability at the FHLB. The FHLB unused credit
capacity, $281 million at December 31, 1996, provides the Company significant
flexibility in asset/liability management, liquidity and deposit pricing.
In January 1996, the Company called $7.5 million of its 1985 subordinated
debentures which had a maturity date of 2000. As a result, 806,598 shares of
BancGroup stock were issued and cash was paid for the remaining debentures. In
December 1996, BancGroup entered into a two year revolving line of credit for
$35 million and a term loan with a maximum principal amount of $15.5 million.
This line of credit provides an additional source of funding for acquisition
related activities. In January 1997, BancGroup issued $70 million in Trust
Preferred Securities. These securities qualify as Tier I Capital, will be shown
as long-term debt in the consolidated financial statements, and carry an 8.92%
interest rate. A portion of the proceeds of the offering were utilized to pay
off the term note and revolving debt outstanding. The remainder of the proceeds
will be used for acquisitions and other business purposes. 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 $1.9 million for the payment of interest on debt,
$2.4 million for principal payment on term notes (See Note 9 to the consolidated
financial statements) and $18.1 million for the payment of dividends. The parent
company's primary source of funds was $16.5 million in dividends received from
its banking subsidiaries. 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 $109 million of retained earnings plus certain 1997 earnings would
be available for distribution to BancGroup, from its subsidiaries, as dividends
in 1997 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 banks.
At December 31, 1996, BancGroup's liquidity position was adequate with
loan maturities of $1,047 million, or 26% of the total loan portfolio, due
within one year. Securities totaling $464 million or 64% of the total portfolio
also had maturities within one year or have been classified as available for
sale. As of December 31, 1996 there were, however, no current plans to dispose
of any significant portion of these securities. In addition BancGroup has $281
million in additional borrowing capacity at the FHLB and CMC has $118 million
available through a warehouse line with FHLB.
BancGroup's asset/liability management policy has also established targets
for interest rate sensitivity. Changes in interest rates will necessarily lead
to changes in the net interest margin. It is ALMCO's goal to minimize
volatility in the net interest margin by taking an active role in managing the
level, mix and maturities of assets and liabilities and by analyzing and taking
action to manage mismatch and basis risk. The interest sensitivity schedule
reflects an 9.7% negative gap at 12 months; therefore, BancGroup has a greater
exposure to net income if interest rates increase. Based on this schedule,
management believes that neither an increase or decrease in interest rates of
100 basis points would result in a material swing in net income. Management has
managed the asset/liability position of the bank through traditional sources.
BancGroup 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 and held for sale. (See Note 6 to the
consolidated financial statements.) The following table summarizes BancGroup's
interest rate sensitivity as of December 31, 1996.
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 39
<PAGE> 75
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996
-----------------------------------------------------------------------------
INTEREST SENSITIVE WITHIN
-----------------------------------------------------------------------------
TOTAL 0-90 91-180 181-365 1-5 OVER
(IN THOUSANDS) BALANCE DAYS DAYS DAYS YEARS 5 YEARS
===================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Rate Sensitive Assets:
Federal funds sold and resale agree-
ments and interest bearing deposits 21,133 $ 21,133 $ -- $ -- $ -- $ --
Investment securities 282,110 136,528 15,644 42,272 70,658 17,008
Securities available for sale 440,115 62,883 1,810 12,338 286,065 77,019
Mortgage loans held for sale 157,966 157,433 -- -- -- 533
- -------------------------------------------------------------------------------------------------------------------
Loans, net of unearned income 4,074,633 1,392,530 200,846 509,358 1,369,503 602,396
Allowance for possible loan losses (50,761) (17,503) (2,500) (6,324) (17,029) (7,405)
- -------------------------------------------------------------------------------------------------------------------
Net loans 4,023,872 1,375,027 198,346 503,034 1,352,474 594,991
Nonearning assets 541,655 -- -- - -- 541,655
===================================================================================================================
Total Assets $5,466,851 $1,753,004 $ 215,800 $ 557,644 $1,709,197 $1,231,206
===================================================================================================================
Rate Sensitive Liabilities:
Interest-bearing demand deposits $ 683,716 $ 419,616 $ -- $ -- $ -- $ 264,100
Savings deposits 439,902 284,839 -- 408 -- 154,655
Certificates of deposits less than
$100,000 1,536,003 409,499 215,017 398,624 511,958 905
Certificates of deposits more than
$100,000 513,702 175,666 61,947 136,556 99,335 40,198
IRAs 229,683 75,982 25,683 42,399 85,365 254
Open time deposits 47,035 304 200 45,825 706 --
Short-term borrowings 841,262 681,262 -- 50,000 110,000 --
Long-term debt 39,092 15,460 295 403 1,484 21,450
Noncosting liabilities & equity 1,136,456 -- -- -- -- 1,136,456
===================================================================================================================
Total Liabilities & Equity $5,466,851 $2,062,628 $ 303,142 $ 674,215 $ 808,848 $1,618,018
===================================================================================================================
Gap $ -- $ (309,624) $ (87,342) $(116,571) $ 900,349 $ (386,812)
===================================================================================================================
Cumulative Gap $ -- $ (309,624) $ (396,966) $(513,537) $ 386,812 $ --
===================================================================================================================
</TABLE>
At the bottom of the table is the interest rate sensitivity gap which is
the difference between rate sensitive assets and rate sensitive liabilities.
In reviewing the table, it should be noted that the balances are shown for
a specific point in time and, because the interest sensitivity position is
dynamic, it can change significantly over time. For all interest earning assets
and interest bearing liabilities, variable rate assets and liabilities are
reflected in the time interval of the assets or liabilities' earliest repricing
date. Fixed rate assets and liabilities have been allocated to various time
intervals based on contractual repayment. Furthermore, the balances reflect
contractual repricing of the deposits and management's position on repricing
certain deposits where management discretion is permitted. Prepayment
assumptions are applied at a constant rate based on the Company's 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 $743 million with a corresponding cumulative gap at one year of
negative $947 million.
40 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
<PAGE> 76
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 1996 was 42%. This level is in 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 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, 1996 are stated below:
<TABLE>
<S> <C>
Capital (thousands):
Tier I Capital:
Shareholders' equity
(excluding unrealized gain
on securities available
for sale) less intangibles $ 356,043
Tier II Capital:
Allowable loan loss reserve 48,648
Subordinated debt 8,612
----------
Total Capital $ 413,303
Risk Adjusted Assets (thousands)$ 3,889,755
Total Assets (thousands) $5,468,050
<CAPTION>
1996 1995 1994
===========================================================================
<S> <C> <C> <C>
Tier I leverage ratio 6.73% 7.03% 6.82%
Risk Adjusted Capital
Ratios:
Tier I Capital Ratio 9.15% 9.38% 9.58%
Total Capital Ratio 10.63% 11.20% 11.62%
</TABLE>
As previously mentioned, in January 1997 BancGroup issued $70 million in
Trust Preferred Capital Securities. The above capital ratios would have been
approximately 8.05%, 10.95% and 12.43% for Tier I leverage, Tier I risk
adjusted and total risk adjusted capital had these securities been outstanding
at December 31, 1996.
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, 1996, these deposits totaled $29.9
million.
FINANCIAL ACCOUNTING STANDARDS
BOARD RELEASES
In June 1996, the Financial Accounting Standards Board issued SFAS No. 125
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities." This Statement is effective for transfers and servicing of
financial assets and extinguishments of liabilities occuring after December 31,
1996, and is to be applied prospectively. Earlier or retroactive application is
not permitted. However, in December 1996, the Financial Accounting Standards
Board issued SFAS No. 127, "Deferral of the Effective Date of certain
provisions of FASB Statement No. 125." This statement defers the effective date
of Certain Provisions for one year (December 31, 1997). The deferred provisions
relate to repurchase agreements, dollar-roll transactions, securities lending,
and similar transactions. The effective date for all other transfers and
servicing of financial assets is unchanged. Management does not believe that
the adoption of SFAS No. 125, as amended by SFAS No. 127, will have a material
impact on BancGroup's financial statements.
BancGroup adopted SFAS No. 123, Accounting for Stock-based Compensation,
on January 1, 1996. (See Notes 1 and 14 to the consolidated financial
statements.)
CAUTIONARY STATEMENT PURSUANT TO SAFE
HARBOR PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
This report contains "forward-looking statements" within the meaning of
the federal securities laws. The forward-looking statements in this report are
subject to risks and uncertainties that could cause actual results to differ
materially from those expressed in or implied by the statements.
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 41
<PAGE> 77
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,
1996 and 1995, and the related supplemental consolidated statements of income,
changes in shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
The supplemental consolidated financial statements give retroactive effect
to the mergers of The Colonial BancGroup, Inc. with Jefferson Bancorp, Inc. and
D/W Bankshares, Inc. These combinations occurred on January 3, 1997 and January
31, 1997, respectively, and have been accounted for as poolings of interests as
described in Notes 1 and 2 to the supplemental consolidated financial
statements. Generally accepted accounting principles proscribe giving effect to
a consummated business combination accounted for by the pooling-of-interests
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 combinations are issured.
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, 1996 and
1995, the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1996 in conformity
with generally accepted accounting principles after financial statements are
issued for a period which includes the date of consummation of the business
combination.
As discussed in Note 1 to the consolidated supplemental financial
statements, the Company changed its method of accounting for mortgage servicing
rights in 1995 and for investments in 1994.
COOPERS & LYBRAND L.L.P.
Montgomery, Alabama
February 20, 1997, except for Note 2 as to which
the date is March 5, 1997
42 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
<PAGE> 78
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
December 31, 1996 and 1995
(Dollars in thousands)
<S> <C> <C>
ASSETS 1996 1995
- -----------------------------------------------------------------------------------------------------
Cash and due from banks $ 222,059 $ 190,321
Interest-bearing deposits in banks 5,143 6,270
Federal funds sold 15,990 48,919
Securities available for sale (Note 3) 440,115 359,127
Investment securities (market value: 1996, $284,164; 1995, $294,609) (Note 3) 282,110 291,299
Mortgage loans held for sale 157,966 112,203
Loans, net of unearned income (Note 4) 4,074,633 3,521,514
Less:
Allowance for possible loan losses (Note 5) (50,761) (45,215)
- -----------------------------------------------------------------------------------------------------
Loans, net 4,023,872 3,476,299
Premises and equipment, net (Note 7) 87,514 75,351
Excess of cost over tangible and identified intangible assets
acquired, net 30,381 30,032
Mortgage servicing rights 98,856 80,053
Other real estate owned 9,270 10,654
Accrued interest and other assets 93,575 92,521
- -----------------------------------------------------------------------------------------------------
Total $5,466,851 $4,773,049
=====================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------------------
Deposits:
Noninterest-bearing demand $ 663,893 $ 616,960
Interest-bearing demand 683,716 680,889
Savings 439,902 379,352
Time 2,326,423 2,023,514
- -----------------------------------------------------------------------------------------------------
Total deposits 4,113,934 3,700,715
FHLB short-term borrowings (Note 8) 715,000 465,000
Other short-term borrowings (Note 8) 126,262 151,681
Subordinated debt (Note 9) 8,612 18,545
Other long-term debt (Note 9) 30,480 29,143
Other liabilities 85,567 71,034
- -----------------------------------------------------------------------------------------------------
Total liabilities 5,079,855 4,436,118
- -----------------------------------------------------------------------------------------------------
Commitments and contingencies (Notes 6, 15)
Shareholders' equity: (Notes 3, 10)
Common Stock, $2.50 par value; 44,000,000 shares authorized,
issued and outstanding: 37,545,561 and 35,793,294 in 1996 and 1995* 93,864 89,483
Additional paid in capital* 159,640 146,587
Retained earnings 134,523 103,224
Unearned compensation (1,603) (1,849)
Unrealized gain on securities available for sale, net of taxes 572 (514)
- -----------------------------------------------------------------------------------------------------
Total shareholders' equity 386,996 336,931
- -----------------------------------------------------------------------------------------------------
Total $5,466,851 $4,773,049
=====================================================================================================
</TABLE>
See notes to supplemental consolidated financial statements.
* Restated to reflect the impact of a two-for-one stock split in the form of a
100% stock dividend paid on February 11, 1997.
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 43
<PAGE> 79
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF INCOME
For the years ended
December 31, 1996, 1995 and 1994
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
1996 1995 1994
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $348,563 $285,539 $208,617
Interest and dividends on securities:
Taxable 35,581 33,983 28,590
Nontaxable 2,846 2,964 3,444
Dividends 2,103 2,137 1,779
Interest on federal funds sold and securities purchased under
resale agreements 2,515 2,930 1,333
Other interest 349 344 382
- -------------------------------------------------------------------------------------------
Total interest income 391,957 327,897 244,145
- -------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on deposits 158,591 130,844 86,685
Interest on short-term borrowings 38,660 30,308 11,132
Interest on long-term debt 2,702 3,743 3,476
- -------------------------------------------------------------------------------------------
Total interest expense 199,953 164,895 101,293
- -------------------------------------------------------------------------------------------
NET INTEREST INCOME 192,004 163,002 142,852
Provision for possible loan losses (Notes 1, 5) 11,783 8,281 8,070
- -------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE LOAN LOSSES 180,221 154,721 134,782
- -------------------------------------------------------------------------------------------
NONINTEREST INCOME:
Mortgage servicing fees 28,067 23,787 22,216
Service charges on deposit accounts 21,119 18,288 16,017
Securities gains (losses), net (Note 3) (1,512) 622 1,485
Other charges, fees and commissions 6,937 6,219 5,190
Other income 16,207 10,345 7,922
- -------------------------------------------------------------------------------------------
Total noninterest income 70,818 59,261 52,830
- -------------------------------------------------------------------------------------------
NONINTEREST EXPENSE:
Salaries and employee benefits 73,567 59,094 61,437
Occupancy expense of bank premises, net 15,712 13,703 13,375
Furniture and equipment expenses 11,695 9,857 8,343
Amortization of mortgage servicing rights 12,522 9,095 6,078
Amortization of intangible assets 2,065 1,525 1,353
SAIF special assessment 3,817 -- --
Other expense (Note 17) 55,444 51,251 46,320
- -------------------------------------------------------------------------------------------
Total noninterest expense 174,822 144,525 136,906
- -------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 76,217 69,457 50,706
Applicable income taxes (Note 18) 26,834 24,656 16,831
- -------------------------------------------------------------------------------------------
NET INCOME $ 49,383 $ 44,801 $ 33,875
===========================================================================================
EARNINGS PER SHARE:
Primary* $ 1.30 $ 1.23 $ 0.98
Fully-diluted* 1.28 1.20 0.97
AVERAGE NUMBER OF SHARES OUTSTANDING:
Primary* 38,117 36,327 34,445
Fully-diluted* 38,977 38,199 35,979
===========================================================================================
</TABLE>
See notes to supplemental consolidated financial statements.
* Restated to reflect the impact of a two-for-one stock split in the form of a
100% stock dividend paid on February 11, 1997.
44 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
<PAGE> 80
SUPPLEMENTAL CONSOLIDATED STATEMENT OF CHANGES
IN SHAREHOLDERS' EQUITY
For the years ended
December 31, 1996, 1995 and 1994
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
CLASS A CLASS B ADDITIONAL
COMMON STOCK COMMON STOCK COMMON STOCK PAID IN
SHARES * AMOUNT* SHARES* AMOUNT* SHARES* AMOUNT* CAPITAL*
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994 26,286,278 $ 65,716 1,273,790 $3,184 $ 91,945
Adjustments for pooling-of-interests
combinations (Notes 1 and 2) 4,401,182 11,003 -- -- 23,460
- ------------------------------------------------------------------------------------------------------------------------------
Restated Beginning Balance 30,687,460 76,719 1,273,790 3,184 115,405
- ------------------------------------------------------------------------------------------------------------------------------
Shares issued under:
Directors Stock Plan 28,534 71 213
Stock Option Plans 188,894 472 869
Dividend Reinvestment 46,026 115 374
Stock Bonus & Retention Plan 44,500 111 340
Employee Stock Purchase Plan 4,372 11 37
Issuance of shares for previous
year combinations 14,940 37 69
Issuance of common stock by
a pooled bank prior to merger 954,420 2,387 3,282
Net income
Cash dividends: (Class A, $0.40 per
share; Class B, $0.20 per share)
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 31,972,760 79,932 1,270,176 3,175 120,589
- ------------------------------------------------------------------------------------------------------------------------------
Shares issued under:
Directors Stock Plan 1,716 4 32,332 $81 241
Stock Option Plans 13,182 33 224,396 562 1,165
Dividend Reinvestment 53,516
Stock Bonus & Retention Plan 50,000
Employee Stock Purchase Plan 536 1 7,534 19 90
Issuance of common stock by
a pooled bank prior to merger 9,344 23 43,270 108 489
Conversion of Class A Common
Stock and Class B Common
Stock to Common Stock (31,997,538) (79,993) (1,270,176) (3,175) 33,267,714 83,168
Issuance of shares for business
combinations 2,089,994 5,225 22,591
Net income
Cash dividends: (Class A, $0.1125 per
share; Class B, $0.0625 per share;
Common, $0.3375 per share)
Cash dividends by pooled bank prior to merger
Conversion of 7 1/2% convertible
subordinated debentures 23,418 59 269
Conversion of 12 3/4% convertible
subordinated debentures 1,120
Change in unrealized gain (loss) on
securities available for sale, net of taxes
- ------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 0 0 0 0 35,793,294 89,483 146,587
- ------------------------------------------------------------------------------------------------------------------------------
Shares issued under:
Directors Stock Plan 31,710 79 249
Stock Option Plans 499,079 1,248 1,706
Dividend Reinvestment 60,136 150 897
Stock Bonus & Retention Plan 48,340 121 833
Employee Stock Purchase Plan 10,264 26 154
Issuance of shares for business combination 154,596 386 2,214
Net income
Cash dividends: ($0.54 per share)
Cash dividends by pooled bank prior to merger
Treasury Stock activity of a pooled bank prior to merger (33,382) (83) (354)
Conversion of 7 1/2% convertible
subordinated debentures 174,926 437 2,011
Conversion of 12 3/4% convertible
subordinated debentures 806,598 2,017 5,343
Change in unrealized gain on securities
available for sale, net of taxes
- ------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 0 $ 0 0 $0 37,545,561 $93,864 $159,640
==============================================================================================================================
<CAPTION>
UNREALIZED
GAIN (LOSS) ON
SECURITIES TOTAL
RETAINED UNEARNED AVAILABLE SHAREHOLDERS
EARNINGS COMPENSATION FOR SALE EQUITY
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, January 1, 1994 $37,544 $-- $-- $198,389
Adjustments for pooling-of-interests
combinations (Notes 1 and 2) 9,613 (763) 1,694 45,007
- -------------------------------------------------------------------------------------------
Restated Beginning Balance 47,157 (763) 1,694 243,396
- -------------------------------------------------------------------------------------------
Shares issued under:
Directors Stock Plan 284
Stock Option Plans 1,341
Dividend Reinvestment 489
Stock Bonus & Retention Plan (77) 374
Employee Stock Purchase Plan 48
Issuance of shares for previous
year combinations 106
Issuance of common stock by
a pooled bank prior to merger (1,109) 4,560
Net income 33,875 33,875
Cash dividends: (Class A, $0.40 per
share; Class B, $0.20 per share) (7,432) (7,432)
Cash dividends by pooled bank prior to
merger (1,739) (1,739)
Conversion of Class B Common
Stock to Class A Common Stock --
Unrealized loss on securities
available for sale, net of taxes (13,742) (13,742)
- -------------------------------------------------------------------------------------------
Balance, December 31, 1994 70,752 (840) (12,048) 261,560
- -------------------------------------------------------------------------------------------
Shares issued under:
Directors Stock Plan 326
Stock Option Plans 1,760
Dividend Reinvestment 582
Stock Bonus & Retention Plan (822) --
Employee Stock Purchase Plan 110
Issuance of common stock by
a pooled bank prior to merger (187) 433
Conversion of Class A Common
Stock and Class B Common
Stock to Common Stock --
Issuance of shares for business
combinations 27,816
Net income 44,801 44,801
Cash dividends: (Class A, $0.1125 per
share; Class B, $0.0625 per share;
Common, $0.3375 per share) (10,521) (10,521)
Cash dividends by pooled bank prior to
merger (1,808) (1,808)
Conversion of 7 1/2% convertible
subordinated debentures 328
Conversion of 12 3/4% convertible
subordinated debentures 10
Change in unrealized gain (loss) on
securities available for sale, net of taxes 11,534 11,534
- -------------------------------------------------------------------------------------------
Balance, December 31, 1995 103,224 (1,849) (514) 336,931
- -------------------------------------------------------------------------------------------
Shares issued under:
Directors Stock Plan 328
Stock Option Plans 2,954
Dividend Reinvestment 1,047
Stock Bonus & Retention Plan 246 1,200
Employee Stock Purchase Plan 180
Issuance of shares for business combination 2,600
Net income 49,383 49,383
Cash dividends: ($0.54 per share) (16,175) (16,175)
Cash dividends by pooled bank prior to merger (1,909) (1,909)
Treasury Stock activity of a pooled bank prior to
merger (437)
Conversion of 7 1/2% convertible
subordinated debentures 2,448
Conversion of 12 3/4% convertible
subordinated debentures 7,360
Change in unrealized gain on securities
available for sale, net of taxes 1,086 1,086
- -------------------------------------------------------------------------------------------
Balance, December 31, 1996 $134,523 $(1,603) $572 $386,996
===========================================================================================
</TABLE>
See notes to supplemental consolidated financial statements.
* Restated to reflect the impact of a two-for-one stock split in the form of a
100% stock dividend paid on February 11, 1997.
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 45
<PAGE> 81
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1996, 1995, and 1994
(In thousands)
<TABLE>
<CAPTION>
1996 1995 1994
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $49,383 $44,801 $33,875
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation, amortization and accretion 14,356 13,705 11,503
Amortization of mortgage servicing rights 12,522 9,095 6,078
Amortization of excess servicing fees 1,105 1,166 1,721
Provision for possible loan losses 11,783 8,281 8,070
Deferred income taxes (1,103) (2,342) (2,333)
Loss (gain) on sale of securities, net 1,512 (622) (1,485)
Gain on sale of other assets (537) -- --
Additions to mortgage servicing rights (32,264) (32,139) (34,624)
Net (increase) decrease in mortgage loans held for sale (45,763) (50,647) 309,766
Increase in interest receivable (1,795) (9,087) (3,874)
Decrease in prepaids and other receivables 687 4,683 (3,701)
Decrease in accrued expenses and accounts payable (789) (4,687) (35,775)
Increase (decrease) in accrued income taxes 414 3,054 (2,491)
Increase in interest payable 3,923 11,230 2,491
Other, net 6,401 (12,388) 5,217
- -------------------------------------------------------------------------------------------------------
Total adjustments (29,548) (60,698) 260,563
- -------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 19,835 (15,897) 294,438
- -------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from maturities of securities available for sale 88,346 59,067 52,100
Proceeds from sales of securities available for sale 55,367 74,522 104,499
Purchase of securities available for sale (139,625) (164,634) (104,682)
Proceeds from maturities of investment securities 145,724 92,871 74,123
Proceeds from sales of investment securities -- 10,119 --
Purchases of investment securities (144,527) (55,186) (134,403)
Net decrease (increase) in short-term investment securities 5,300 200 (1,094)
Net increase in loans (605,813) (667,294) (426,266)
Cash and cash equivalents received in bank acquisitions, net (Note 2) 1,437 23,201 --
Cash and cash equivalents received in the purchase
of assets and assumption of liabilities(Note 2) 7,028 -- 12,154
Capital expenditures (21,866) (11,608) (11,988)
Proceeds from sale of other real estate owned 10,238 10,644 7,611
Other, net 111 2,474 6,799
- -------------------------------------------------------------------------------------------------------
Net cash used in investing activities (598,280) (625,624) (421,147)
- -------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase in demand, savings and time deposits 363,961 543,180 21,070
Net increase in federal funds purchased and
repurchase agreements and other short-term borrowings 225,201 194,168 71,302
Proceeds from issuance of long-term debt 6,394 12,092 25,336
Repayment of long-term debt (5,064) (55,526) (13,524)
Proceeds from issuance of common stock 3,718 2,406 6,198
Proceeds from issuance of subordinated debt -- 1,425 --
Dividends paid (18,083) (12,339) (9,171)
- -------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 576,127 685,406 101,211
- -------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (2,318) 43,885 (25,498)
- -------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of year 245,510 201,625 227,123
- -------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year (Note 1) $243,192 $245,510 $201,625
=======================================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $190,451 $152,573 $97,870
Income taxes 28,503 22,614 24,487
Non-cash transactions:
Transfer of loans to other real estate $8,184 $6,013 $4,787
Origination of loans from the sale of other real estate 303 456 1,309
Securitization of mortgage loans 87,641 -- --
Transfer of investment securities to securities available for sale -- 60,421 33,457
Conversion of subordinated debentures to common stock 9,808 428 --
Assets acquired in business combinations 48,367 330,626 47,985
Liabilities assumed in business combinations 45,766 302,810 57,191
=======================================================================================================
</TABLE>
See notes to supplemental consolidated financial statements.
46 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
<PAGE> 82
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 1996, 1995 and 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
The Colonial BancGroup, Inc. ("BancGroup") and its subsidiaries operate
predominantly in the domestic commercial and mortgage banking industry. The
accounting and reporting policies of BancGroup and its subsidiaries conform to
generally accepted accounting principles and to general practice within the
banking industry. The following summarizes the most significant of these
policies.
BASIS OF PRESENTATION--The supplemental consolidated financial statements
of The Colonial BancGroup, Inc. and subsidiaries have been prepared to give
retroactive effect to the mergers with Jefferson Bancorp, Inc. (Jefferson) and
D/W Bankshares, Inc. (Bankshares) on January 3, and January 31, 1997,
respectively. Generally accepted accounting principles proscribe giving effect
to a consummated business combination accounted for by the pooling-of-interests
method in financial statements that do not include the date of consummation.
These financial statements do not extend through the date of consummation;
however, they will become the historical consolidated financial statements of
The Colonial BancGroup, Inc. and subsidiaries after financial statements
covering the date of consummation of the business combinations are issued. The
consolidated financial statements of BancGroup for 1995 and 1994 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--BancGroup 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, 1996 and 1995 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 col-
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 47
<PAGE> 83
lect 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.
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, 1996, 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 up to 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
48 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
<PAGE> 84
net servicing income considering the average interest rate and the average
remaining lives of the related mortgage loans being serviced. At December 31,
1996, BancGroup had mortgage servicing and excess servicing rights with a net
book value of $107 million. The estimated combined fair value of these assets
is approximately $152 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, 1996 and 1995 are stated net of accumulated amortization
of approximately $38,425,000 and $25,903,000, 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.
LONG LIVED ASSETS--BancGroup adopted SFAS No. 121, "Accounting for the
Impairment of Long Lived Assets and for Long-Lived Assets to be Disposed Of" on
January 1, 1996. 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. The adoption of SFAS No. 121 did not have a
material impact on BancGroup's financial statements.
INCOME TAXES--BancGroup uses the asset and liability method of accounting
for income taxes (See Note 18). Under the asset and liability method, deferred
tax assets and liabilities are recorded at currently enacted tax rates
applicable to the period in which assets or liabilities are expected to be
realized or settled. 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.
STOCK-BASED COMPENSATION--BancGroup adopted SFAS No. 123, "Accounting for
Stock-Based Compensation", on January 1, 1996. 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. BancGroup has elected to continue to measure
compensation cost for their stock option plan under the provisions in APB
Opinion 25.
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 $5,415,000 $4,197,000 and $3,032,000 for the years ended December
31, 1996, 1995 and 1994, respectively.
RECENTLY ISSUED ACCOUNTING STANDARDS--In June 1996, the Financial
Accounting Standards Board issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities". This
statement provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities. This
statement utilizes the financial-components approach that focuses on control.
Under that approach, after a transfer of financial assets, an entity recognizes
the financial and servicing assets it controls and the liabilities it has
incurred, derecognizes financial assets when control has been surrendered, and
derecognizes liabilities when extinguished.
A transfer of financial assets in which the transferor surrenders control
over those assets is accounted for as a sale to the extent that consideration
other than beneficial interests in the transferred assets is received in
exchange.
This Statement requires that liabilities and derivatives incurred or
obtained by transferors as part of a transfer of financial assets be initially
measured at fair value, if practicable. It also requires that servicing assets
and other retained interests in the transferred assets be measured by
allocating the previous carrying amount between the assets sold, if any, and
retained interests, if any, based on their relative fair values at the date of
the transfer.
This Statement requires that a liability be derecognized if and only if
either (a) the debtor pays the creditor and is relieved of its obligation for
the liability or (b) the debtor is legally released from being the primary
obligor under the liability either judicially or by the creditor. Therefore, a
liability is not considered extinguished by an in-substance defeasance.
This Statement is effective for transfers and servicing of financial
assets and extinguishments of liabilities occuring after December 31, 1996, and
is to be applied prospectively. Earlier or retroactive application is not
permitted. However, in December 1996, the Financial Accounting Standards Board
issued SFAS No. 127, "Deferral of the Effective Date of Certain Provisions of
FASBStatement No. 125". This statement defers the effective date of certain
provisions for one year (December 31, 1997). The deferred provisions relate to
repurchase agreements, dollar-roll transactions, securities lending, and
similar
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 49
<PAGE> 85
transactions. The effective date for all other transfers and servicing of
financial assets is unchanged. Management does not believe that the adoption of
SFAS No. 125 will have a material impact on BancGroup's financial statements.
2. BUSINESS COMBINATIONS
On January 3, 1997, Jefferson was merged into BancGroup. Jefferson is a
Florida corporation and is a holding company for Jefferson Bank of Florida
located in Miami Beach, Florida. Jefferson has merged with BancGroup and
Jefferson Bank of Florida merged with BancGroup's existing bank subsidiary in
Orlando, Florida, Colonial Bank. A total of 3,854,952 shares of BancGroup's
Common Stock was issued to the stockholders of Jefferson. At December 31, 1996,
Jefferson had assets of $472.7 million, deposits of $405.8 million and
stockholders' equity of $32.3 million. This merger was accounted for under the
pooling-of-interests method of accounting and, accordingly, all information
presented has been restated to include Jefferson.
On, January 31, 1997, Bankshares was merged into BancGroup. Bankshares is
a Georgia corporation and is a holding company for Dalton/Whitfield Bank &
Trust located in Dalton, Georgia ("Dalton/Whitfield"). Bankshares has merged
with BancGroup and Dalton/Whitfield merged with BancGroup's existing bank
subsidiary in Lawrenceville, Georgia, Colonial Bank. A total of 1,016,548
shares of BancGroup's Common Stock was issued to the stockholders of
Bankshares. At December 31, 1996, Bankshares had assets of $138.7 million,
deposits of $124.4 million and stockholders' equity of $10.0 million. This
merger was accounted for under the pooling-of-interests method of accounting
and, accordingly, all information presented has been restated to include
Bankshares.
On July 3, 1996, BancGroup completed a business combination with
Commercial Bancorp of Georgia, Inc. ("Commercial"), of Lawrenceville, Georgia
with the issuance of 2,306,460 shares of BancGroup common stock. At the date of
combination, Commercial 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, Commercial is included in all periods presented.
On July 3, 1996, BancGroup completed a business combination with Southern
Banking Corporation ("Southern"), of Orlando, Florida with the issuance of
2,858,494 shares of BancGroup common stock. At the date of combination,
Southern 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, Southern is included in all periods presented.
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, CMC is included in all periods
presented.
Presented below is summary operating information for BancGroup showing the
effect of the business combinations described in the preceding paragraphs
(years prior to consummation).
<TABLE>
<CAPTION>
AS PREVIOUSLY EFFECT OF CURRENTLY
(In thousands) REPORTED POOLINGS REPORTED
-----------------------------------------------------------
<S> <C> <C> <C>
1996:
Net interest income $169,678 $22,326 $192,004
Noninterest income 65,982 4,836 70,818
Net income 53,608 (4,225) 49,383
1995:
Net interest income 118,442 44,560 163,002
Noninterest income 45,982 13,279 59,261
Net income 38,794 6,007 44,801
1994:
Net interest income 104,681 38,171 142,852
Noninterest income 18,125 34,705 52,830
Net income 27,671 6,204 33,875
===========================================================
</TABLE>
Prior to the date of consummation in 1996, Commercial and Southern had net
interest income of $6,437,000 and $7,166,000, respectively, and net income of
$1,340,000 and $1,750,000, respectively.
On April 19, 1996, BancGroup purchased certain assets totaling $31,428,000
and assumed certain liabilities, primarily deposits, totaling $30,994,000 of
the Enterprise, Alabama branch of First Federal Bank.
During 1995 and 1996, four purchase method combinations were consummated;
the following table represents those acquisitions.
<TABLE>
<CAPTION>
(Dollars in thousands)
Common
Consummation Stock Issued
----------------------
Bank Date Shares Value
======================================================
<S> <C> <C> <C>
Brundidge Banking
Company March 31, 1995 532,868 $ 6,209
Mt. Vernon
Financial Corp. October 20, 1995 1,043,440 14,608
Farmers and
Merchants
Bank November 3, 1995 513,686 6,999
Dothan Federal
Savings Bank July 8, 1996 154,690 2,601
</TABLE>
The value of the shares issued represents the total purchase price of
Brundidge Banking Company and Mt. Vernon Financial Corp. Farmers and Merchants
Bank and Dothan Federal Savings Bank shareholders received $3 million and $2.6
million in cash, respectively, in addition to the amounts received in stock.
The financial institution mergers 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.
50 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
<PAGE> 86
The following table presents unaudited pro forma results of operations for
the years ended December 31, 1996 and 1995, 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) 1996 1995
======================================================
(Unaudited)
<S> <C> <C>
Net interest income $192,042 $168,003
Net income 49,403 45,931
Earnings per share:
Primary $ 1.29 $ 1.21
Fully-diluted $ 1.28 $ 1.18
Average shares outstanding:
Primary 38,198 37,884
Fully-diluted 39,058 39,756
======================================================
</TABLE>
The following chart summarizes the assets acquired and the liabilities
assumed in connection with the 1996 and 1995 purchase method combinations:
<TABLE>
<CAPTION>
1996 1995
(In thousands) Total Total
=======================================================
<S> <C> <C>
Cash and due froms $ 480 $ 5,899
Interest-bearing deposits in banks -- 987
Federal funds sold 957 16,325
Securities available for sale 7,529 25,557
Investment securities -- 11,456
Loans, net 35,985 249,086
Accrued interest and other assets 1,767 10,009
Deposits 39,931 247,848
Short-term borrowings 1,875 40,000
Other long-term debt -- 3,541
Other liabilities 3,960 11,421
Equity 2,600 27,816
=======================================================
Excess of cost over tangible and
identified intangible assets
acquired, net $ 1,648 $ 11,317
=======================================================
</TABLE>
The above business combinations have been reflected in BancGroup's
consolidated financial statements. The following business combinations have
not yet been reflected in BancGroup's financial statements.
On January 3, 1997, Tomoka Bancorp, Inc. ("Tomoka") was merged into
BancGroup. Tomoka is a Florida corporation and is a holding company for Tomoka
State Bank located in Ormond Beach, Florida. Tomoka has merged with BancGroup
and Tomoka State Bank has merged with BancGroup's existing bank subsidiary in
Orlando, Florida, Colonial Bank. A total of 661,992 shares of BancGroup's
Common Stock was issued to the stockholders of Tomoka. At December 31, 1996,
Tomoka had assests of $76.7 million, deposits of $68.2 million and
stockholders' equity of $6.5 million. This merger was accounted for as a
pooling of interests, however the merger is not material to BancGroup's
financial statements, and thus, prior period information has not been restated
to include Tomoka.
On January 9, 1997, First Family Financial Corporation ("First Family")
was merged into BancGroup. First Family is a Florida corporation and is a
holding company for First Family Bank, fsb located in Eustis, Florida. First
Family has merged with BancGroup and following regulatory approval, First
Family Bank, fsb will merge with BancGroup's existing subsidiary bank in
Orlando, Florida, Colonial Bank. A total of 329,492 shares of BancGroup's
Common Stock and $6,491,875 in cash has been issued to the stockholders of
First Family. At December 31, 1996, First Family had assets of $167.3 million,
deposits of $156.7 million and stockholders' equity of $8.7 million. This
merger was accounted for as a purchase method combination, and thus results of
operations will be included in BancGroup's financial statements only from the
date of consummation forward.
PENDING MERGERS
BancGroup 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 merge with BancGroup and following such
merger, Fort Brooke Bank will merge with BancGroup's existing bank subsidiary
in Orlando, Colonial Bank. Based on the market price of BancGroup's Common
Stock as of February 25, 1997, 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 in this transaction
will depend upon the market value of such Common Stock at the time of the
merger subject to a maximum of 1,950,152 shares and a minimum of 1,600,124
shares to be issued.This transaction is subject to, among other things,
approval by the stockholders of Fort Brooke and approval by appropriate
regulatory authorities. At December 31, 1996, Fort Brooke had assets of
$208.8 million, deposits of $185.8 million and stockholders' equity of $16.6
million. This merger will be accounted for as a pooling-of-interests.
On March 5, 1997, Shamrock Holding, Inc., parent of The Union Bank in
Evergreen, Alabama, ("Shamrock") was merged into BancGroup. BancGroup purchased
all of the outstanding shares of Shamrock for an aggregate cash price of
$11,482,000. At December 31, 1996, The Union Bank had total assets of
approximately $54.5 million, deposits of $46.4 million, and stockholders'
equity of $7.9 million. This merger will be accounted for as a purchase method
business combination, and thus the results of operations will be included in
BancGroup's financial statements only from the date of consummation forward.
In March 1997, BancGroup entered into definitve agreements to merge two
additional Florida banks into BancGroup. First Commerce Banks of Florida, Inc.
("First Commerce"), in Winter Haven, had assets of $106 million at December 31,
1996. Great Southern Bank ("Great Southern"), in West Palm Beach, had assets of
$119 million at December 31, 1996. The First Commerce merger will be accounted
for as a purchase while the Great Southern merger will be a pooling of
interests.
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 51
<PAGE> 87
3. SECURITIES
The carrying and market values of investment securities are summarized as
follows:
<TABLE>
<CAPTION>
INVESTMENT SECURITIES
(In thousands) 1996 1995
- --------------------------------------------------------------------------------------------------------------------
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 $239,964 $2,331 $(1,001) $241,294 $229,571 $3,841 $(1,660) $231,752
Obligations of state and
political subdivisions 40,979 960 (49) 41,890 50,256 1,265 (155) 51,366
Other 1,167 15 (202) 980 11,472 68 (49) 11,491
- --------------------------------------------------------------------------------------------------------------------
Total $282,110 $3,306 $(1,252) $284,164 $291,299 $5,174 $(1,864) $294,609
====================================================================================================================
</TABLE>
The carrying and market values of securities available for sale are
summarized as follows:
<TABLE>
<CAPTION>
SECURITIES AVAILABLE FOR SALE
(In thousands) 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
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 $420,014 $2,819 $(2,818) $420,015 $339,090 $2,287 $(3,967) $337,410
Obligations of state and
political subdivisions 11,934 84 (51) 11,967 11,617 60 (46) 11,631
Other 7,306 898 (71) 8,133 9,271 1,020 (205) 10,086
- ------------------------------------------------------------------------------------------------------------------------
Total $439,254 $3,801 $(2,940) $440,115 $359,978 $3,367 $(4,218) $359,127
========================================================================================================================
</TABLE>
<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 $ 60,629 $ 60,912 $ 68,025 $ 67,737
Due after one year
through five years 133,808 135,213 136,619 136,725
Due after five years
through ten years 14,987 15,569 26,489 26,623
Due after ten years 2,037 2,135 158 165
-----------------------------------------------------------------------
211,461 213,829 231,291 231,250
Mortgage-backed
securities 70,649 70,335 169,233 169,735
-----------------------------------------------------------------------
Total $282,110 $284,164 $400,524 $400,985
=======================================================================
</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 $60,421,000 from
Investment Securities to Securities Available for Sale.
52 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
<PAGE> 88
4. LOANS
A summary of loans follows:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
-------------------------------------------------
<S> <C> <C>
Commercial, financial,
and agricultural $ 560,824 $ 509,526
Real estate--commercial 983,673 844,460
Real estate--construction 446,288 370,442
Real estate--mortgage 1,767,003 1,516,512
Installment and consumer 264,307 236,834
Other 55,883 48,231
-------------------------------------------------
Subtotal $4,077,978 $3,526,005
Unearned income (3,345) (4,491)
-------------------------------------------------
Total $4,074,633 $3,521,514
=================================================
</TABLE>
BancGroup's lending is concentrated throughout Alabama, southern
Tennessee, central Georgia and central and south 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, 1996.
In the normal course of business, loans are made to officers, directors,
principal shareholders and to companies in which they own a significant
interest. Loan activity to such parties with an aggregate loan balance of more
than $60,000 during the year ended December 31, 1996 are summarized as follows:
<TABLE>
<CAPTION>
(In thousands)
Balance Balance
1/1/96 Additions Repayments 12/31/96
===============================================
<S> <C> <C> <C>
$41,045 $48,659 $46,933 $43,771
===============================================
</TABLE>
At December 31, 1996 and 1995, the recorded investment in loans for which
impairment has been recognized in accordance with SFAS 114 totaled $29,454,000
and $17,064,000, respectively, and these loans had a corresponding valuation
allowance of $7,842,000 and $6,257,000, respectively. The impaired loans were
measured for impairment based primarily on the value of underlying collateral.
For the years ended December 31, 1996 and 1995, the average recorded investment
in impaired loans was approximately $23,259,000 and $19,150,000. BancGroup
recognized approximately $2,199,000 and $1,121,000 of interest on impaired
loans during the portion of the year that they were impaired in 1996 and 1995,
respectively.
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.
5. ALLOWANCE FOR POSSIBLE LOAN LOSSES
An analysis of the allowance for possible loan losses is as
follows:
<TABLE>
<CAPTION>
(In thousands) 1996 1995 1994
================================================
<S> <C> <C> <C>
Balance, January 1 $45,215 $40,965 $35,428
Addition due to
acquisitions 618 1,129 501
Provision charged
to income 11,783 8,281 8,070
Loans charged off (11,505) (7,833) (6,769)
Recoveries 4,650 2,673 3,735
------------------------------------------------
Balance, December 31 $50,761 $45,215 $40,965
================================================
</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,
1996 and 1995 are as follows:
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 53
<PAGE> 89
<TABLE>
<CAPTION>
Contract Amount
-----------------------------------------------
(In thousands) 1996 1995
-----------------------------------------------
<S> <C> <C>
Financial instruments whose
contract amounts represent
credit risk:
Loan commitments $696,426 $578,241
Standby letters of credit 47,486 30,978
Mortgage sales commitments 193,970 121,925
</TABLE>
Since many of the loan commitments may expire without being drawn upon,
the total commitment amount does not necessarily represent future cash
requirements. The credit risk involved in issuing letters of credit and funding
loan commitments is essentially the same as that involved in extending loan
facilities to customers.
Obligations to sell loans at specified dates (typically within ninety days
of the commitment date) and at specified prices are intended to hedge the
interest rate risk associated with the time period between the initial offer to
lend and the subsequent sale to a permanent investor. Risks arise from changes
in interest rates. Changes in the market value of the sales commitments are
included in the measurement of the gain or loss on mortgage loans held for
sale. The current market value of these commitments was $194,858,000, and
$120,644,000 at December 31, 1996 and 1995, respectively.
7. PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
-----------------------------------------------
<S> <C> <C>
Land $ 21,392 $ 18,041
Bank premises 66,613 62,323
Equipment 62,337 53,883
Leasehold improvements 8,877 4,810
Construction in progress 1,665 1,993
Automobiles 355 360
-----------------------------------------------
Total 161,239 141,410
Less accumulated depreciation
and amortization 73,725 66,059
-----------------------------------------------
Premises and equipment, net $ 87,514 $ 75,351
===============================================
</TABLE>
8. SHORT-TERM BORROWINGS
Short-term borrowings are summarized as follows:
<TABLE>
<CAPTION>
(In thousands) 1996 1995 1994
-------------------------------------------------------------
<S> <C> <C> <C>
Federal funds purchased
and securities sold
under repurchase
agreements $124,245 $150,540 $171,264
FHLB borrowings 715,000 465,000 210,050
Other short-term
borrowings 2,017 1,141 1,131
-------------------------------------------------------------
Total $841,262 $616,681 $382,445
=============================================================
</TABLE>
BancGroup had outstanding term notes (Note 9) of which the current
portion, $1,033,000 and $1,000,000, is included in other short-term borrowings
at December 31, 1996 and 1995, respectively.
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,
1996, BancGroup can borrow up to $1.0 billion from the FHLB on either a short
or long-term basis. At December 31, 1996, $726 million was outstanding.
BancGroup has available an additional unused credit of $281 million with the
FHLB. FHLB has a blanket lien on BancGroup's 1-4 family mortgage loans in the
amount of the outstanding debt. CMC has a warehouse line of credit with $118
million of availability from FHLB, of which none was outstanding at December
31, 1996. This warehouse line is collateralized by mortgage loans held for
sale.
Additional details regarding short-term borrowings are shown below:
<TABLE>
<CAPTION>
(In thousands) 1996 1995 1994
--------------------------------------------------------------------------
<S> <C> <C> <C>
Average amount
outstanding
during the year $713,912 $503,578 $257,561
Maximum amount
outstanding at
any month-end 878,598 638,249 378,930
Weighted average
interest rate:
During year 5.41% 6.00% 4.31%
End of year 5.53% 5.69% 5.48%
--------------------------------------------------------------------------
</TABLE>
9. LONG-TERM DEBT
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
--------------------------------------------------------------
<S> <C> <C>
12 3/4% Convertible Subordinated
Debentures $ -- $ 7,483
7 1/2% Convertible Subordinated
Debentures 7,187 9,637
7% Convertible Subordinated
Debentures 1,425 1,425
Term Note 14,116 10,250
Line of Credit and Other 19 6,353
FHLB Advances 10,809 5,516
REMIC Bonds 5,536 7,024
--------------------------------------------------------------
Total $39,092 $47,688
==============================================================
</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 were 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 could 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
54 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
<PAGE> 90
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 512,800 shares of such
Common Stock would be issued.
The 7 % Convertible Subordinated debentures due December 31, 2004 ("1994
Debentures"), were issued by Bankshares prior to being merged into BancGroup.
The 1994 Debentures are convertible into BancGroup Common Stock, at the
conversion price of $15.16 principal amount of the 1994 Debentures, subject to
adjustment upon occurance of certain events, for each share of stock received.
The 1994 Debentures cannot be redeemed by BancGroup before January 1, 1998.
At December 31, 1995, BancGroup had a term note with $11,250,000
outstanding and a line credit with $6,250,000 outstanding. This term note was
payable in annual installments of $1,000,000 and was due in August 1997. In
1996, BancGroup transferred the outstanding balances of the term note and line
of credit to a new term note. The 1996 term note has $15,149,000 outstanding at
December 31, 1996. (Also see Note 8.) The 1996 term note is payable in annual
installments of $1,033,000 with the balance due in 2001. In addition, BancGroup
entered into a new line of credit with the same financial institution totaling
$35 million, of which none is outstanding at December 31, 1996. The 1996 line
of credit is due at maturity in October 1998. 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. In January
1997, the new term note was paid in full. The repayment was funded with a
portion of the proceeds from the Trust Preferred Securities offering discussed
below.
BancGroup had long-term Federal Home Loan Bank (FHLB) Advances outstanding
of $10,809,000 and $5,516,000 at December 31, 1996 and 1995, respectively.
These advances bear interest rates of 5.32% 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, 1996 the bonds have an outstanding
balance of $5,536,000 and are collateralized by FNMA mortgaged-backed
securities with a carrying value of $5,546,000. 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, 1996
Class Maturity (In thousands)
=========================================================================
<S> <C> <C>
A-3 June 1, 2007 $ 845
A-4 September 1, 2017 4,691
-------------------------------------------------------------------------
Total $5,536
=========================================================================
</TABLE>
At December 31, 1996, 1ong-term debt, including the current portion, is
scheduled to mature as follows:
<TABLE>
<CAPTION>
(In thousands)
==================================================================================
<S> <C>
1997 $ 2,199
1998 1,229
1999 1,438
2000 1,093
2001 11,082
Thereafter 24,068
- ----------------------------------------------------------------------------------
Total $41,109
==================================================================================
</TABLE>
On January 29, 1997, BancGroup issued, through a special purpose trust,
$70 million of Trust Preferred Securities in a private placement offering. The
securities bear interest at 8.92% and are manditorily redeemable by BancGroup
beginning January 2017 through January 2027. Also, BancGroup has the option to
redeem the Securities in whole or in part, at a premium after January 2007
through January 2017, or at the Face amount plus accrued interest after January
2017. The securities are subordinated to substantially all of BancGroup's
indebtedness. In BancGroup's consolidated statement of condition, these
securities will be shown as long-term debt.
10. CAPITAL STOCK
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 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.
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
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 55
<PAGE> 91
adjustment to avoid dilution in the event of certain occurrences, each share of
BancGroup Class B Common Stock was convertible at any time into one share of
Class A Common Stock. Shares of Class A Common Stock were not convertible into
any other securities of BancGroup.
11. REGULATORY MATTERS AND
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 $109
million of retained earnings plus certain 1997 earnings would be available for
distribution to BancGroup, from its subsidiaries, as dividends in 1997 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 31,1996, these deposits totaled $29.9 million.
BancGroup and its subsidiary banks are subject to various regulatory
capital requirements administered by the federal and state banking agencies.
Failure to meet minimum capital requirements can initiate certain
mandatory--and possibly additional discretionary--actions by regulators that,
if undertaken, could have a direct material effect on BancGroup's financial
position. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, BancGroup and its subsidiary banks must meet specific
capital guidelines that involve quantitative measures of assets, liabilities,
and certain off-balance-sheet items as calculated under regulatory accounting
practices. BancGroup's and its subsidiary banks' capital amounts and
classification are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require BancGroup and its subsidiary banks to maintain minimum amounts and
ratios (set forth in the table below) of total and Tier I (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier I capital (as
defined) to average assets (as defined). Management believes, as of December
31, 1996 and 1995, that BancGroup and its subsidiary banks meet all capital
adequacy requirements to which they are subject.
As of December 31, 1996, the most recent notification from the Federal
Deposit Insurance Corporation categorized BancGroup's subsidiary banks as well
capitalized under the regulatory framework for prompt corrective action. To be
categorized as well capitalized BancGroup and its subsidiary banks must
maintain minimum total risk-based, Tier I risk-based, and Tier I leverage
ratios as set forth in the table. There are no conditions or events since that
notification that management believes have changed BancGroup's category.
Actual capital amounts and ratios for BancGroup and its significant bank
subsidiaries are also presented in the following table:
<TABLE>
<CAPTION>
TO BE WELL CAPITALIZED
FOR CAPITAL UNDER PROMPT CORRECTIVE
(In Thousands) ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
- ---------------------------------------------------------------------------------------------------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
=====================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31,1996
Total Capital (to Risk Weighted Assets)
CONSOLIDATED $413,303 10.63% $311,241 >8.0% $389,052 >10.0%
- -
Colonial Bank Alabama 305,015 10.47% 233,112 >8.0% 291,391 >10.0%
- -
Colonial Bank Florida 57,673 11.06% 41,732 >8.0% 52,165 >10.0%
- -
Colonial Bank Georgia 52,632 12.51% 33,664 >8.0% 42,080 >10.0%
- -
Tier I Capital (to Risk Weighted Assets)
CONSOLIDATED 356,043 9.15% 155,621 >4.0% 233,385 >6.0%
- -
Colonial Bank Alabama 268,349 9.21% 116,556 >4.0% 174,834 >6.0%
- -
Colonial Bank Florida 51,707 9.91% 20,866 >4.0% 31,299 >6.0%
- -
Colonial Bank Georgia 45,872 10.90% 16,832 >4.0% 25,248 >6.0%
- -
Tier I Captial (to average assets)
CONSOLIDATED 356,043 6.69% 212,776 >4.0% 265,970 >5.0%
- -
Colonial Bank Alabama 268,349 6.65% 161,418 >4.0% 201,772 >5.0%
- -
Colonial Bank Florida 51,707 6.87% 30,093 >4.0% 37,617 >5.0%
- -
Colonial Bank Georgia 45,872 7.32% 25,071 >4.0% 31,339 >5.0%
- -
AS OF DECEMBER 31, 1995
Total Capital (to Risk Weighted Assets)
CONSOLIDATED $366,948 11.20% $262,072 >8.0% $327,590 >10.0%
- -
Colonial Bank Alabama 263,380 10.81% 194,981 >8.0% 243,726 >10.0%
- -
Colonial Bank Florida 57,485 12.89% 35,684 >8.0% 44,605 >10.0%
- -
Colonial Bank Gerogia 47,190 13.10% 28,821 >8.0% 36,026 >10.0%
- -
Tier I Capital (to Risk Weighted Assets)
CONSOLIDATED 307,415 9.38% 131,036 >4.0% 196,554 >6.0%
- -
Colonial Bank Alabama 232,856 9.55% 97,490 >4.0% 146,236 >6.0%
- -
Colonial Bank Florida 53,093 11.90% 17,842 >4.0% 26,763 >6.0%
- -
Colonial Bank Georgia 41,261 11.45% 14,410 >4.0% 21,616 >6.0%
- -
Tier I Capital (to average assets)
CONSOLIDATED 307,415 6.99% 175,966 >4.0% 219,958 >5.0%
- -
Colonial Bank Alabama 232,856 6.87% 135,498 >4.0% 169,373 >5.0%
- -
Colonial Bank Florida 53,093 8.14% 26,088 >4.0% 32,609 >5.0%
- -
Colonial Bank Georgia 41,261 8.95% 18,436 >4.0% 23,045 >5.0%
- -
</TABLE>
56 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
<PAGE> 92
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, 1996 were as follows:
<TABLE>
<CAPTION>
(In thousands)
-----------------------
<S> <C>
1997 $7,023
1998 6,069
1999 5,461
2000 5,076
2001 3,646
Thereafter 14,940
-----------------------
Total $42,215
=======================
</TABLE>
Rent expense for all leases amounted to $9,131,000 in 1996, $8,162,000 in
1995 and $6,677,000 in 1994.
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 7.75% for 1996, 7.25% for 1995 and 8.5% for 1994. The rate of increase in
future compensation levels was 4.75% for 1996, 4.00% for 1995 and 5.00% for
1994. The expected long-term rate of return on assets was 9% for 1996, 1995,
and 1994.
Employee pension benefit plan status at December 31:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit
obligations:
Accumulated benefit obligation $ 8,623 $ 10,211
Vested benefit obligation $ 8,191 $ 9,244
Projected benefit obligation for
service rendered to date $ 13,279 $ 13,811
Plan assets at fair value $ 13,729 $ 11,567
------------------------------------------------------
Plan assets over/(under) projected
benefit obligation 450 (2,244)
Unrecognized net gain from past
experience different from that
assumed and effects of changes
in assumptions (2,549) (716)
Unrecognized prior service cost 62 66
Unrecognized net asset at
January, 1986 being recognized
over 19 years (45) (38)
------------------------------------------------------
Accrued pension cost $(2,082) $ (2,932)
======================================================
</TABLE>
<TABLE>
<CAPTION>
(In thousands) 1996 1995 1994
----------------------------------------------------
<S> <C> <C> <C>
Net pension cost included the
following components:
Service cost $ 1,099 $ 873 $ 849
Interest cost 1,029 962 619
Actual return on plan assets (1,463) (851) (614)
Net amortization and deferral 405 (6) (27)
----------------------------------------------------
Net pension cost $ 1,070 $ 978 $ 827
====================================================
</TABLE>
At December 31, 1996 and 1995, the pension plan assets included
investments of 45,260 and 59,874 shares of BancGroup Common Stock representing
7% of pension plan assets for both years. At December 31, 1996, BancGroup
Common Stock included in pension plan assets had a cost and market value of
$383,488 and $905,200, respectively. Pension plan assets are distributed
approximately 10% in U.S. Government and agency issues, 26% in Corporate bonds,
48% in equity securities (including BancGroup Common Stock) and 16% in money
market funds.
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
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 57
<PAGE> 93
plan and similar plans of combined banks amounted to $850,000, $772,000 and
$606,000 for 1996, 1995 and 1994, respectively.
Prior to the merger, Jefferson maintained a severance plan for certain
senior officers and directors of Jefferson. The plan provided cash payments to
the effected personnel in the event of retirement or a change in control
(whether or not their employment is terminated. During the years ended December
31, 1996, 1995 and 1994, expense recognized under the plan totaled $4,333,000,
$615,000, and $550,000, 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, 1996 and 1995,
704,872 and 977,038 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 31,1996 and 1995, 1,475,500 and 1,565,500 shares, respectively
remained available for the granting of options under the 1992 Nonqualified
Plan.
Prior to 1992, BancGroup had both a qualified incentive stock option plan
("Plan") under which options were granted at a price not less than fair market
value and a nonqualified stock option plan ("Nonqualified Plan") under which
options were granted at a price not less than 85% of fair market value. All
options under the plans expire ten years from the date of grant, or three
months after the employee's termination. Although options previously granted
under these plans may be exercised, no further options may be granted.
Pursuant to the Southern, Commercial, Jefferson and Bankshares business
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.
Certain of the options issued during 1996 under the 1992 Nonqualified Plan
and the 1992 Plan have vesting requirements. The option recipients are required
to remain in the employment of BancGroup (subject to certain exemptions) for
periods of between one and five years to fully vest in the options granted. The
five year vesting options become exercisable on a pro-rata basis over five
years.
Following is a summary of the transactions in Common Stock under these
plans for the years ended December 31, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
====================================================================================================
Qualified Plans Nonqualified Plans
- ----------------------------------------------------------------------------------------------------
Weighted Average Weighted Average
Shares Exercise Price Shares Exercise Price
====================================================================================================
<S> <C> <C> <C> <C>
Outstanding at December 31, 1993 684,635 $ 6.607 1,617,750 $5.416
Granted (at $5.74-$10.32 per share) 96,250 10.010 153,992 5.607
Exercised (at $2.125-$6.50 per share) (131,867) 5.962 (58,669) 5.632
Cancelled (at $7.975 per share) (29,260) 7.975 -- --
- ----------------------------------------------------------------------------------------------------
Outstanding at December 31, 1994 619,758 7.158 1,713,073 5.536
Granted (at $8.445-$13.495 per share) 8,482 9.571 36,862 8.858
Exercised (at $3.08-$8.74 per share) (150,599) 6.499 (103,715) 7.237
Cancelled (at $6.26 per share) (5,986) 6.260 -- --
- ----------------------------------------------------------------------------------------------------
Outstanding at December 31, 1995 471,655 7.418 1,646,220 5.539
Granted (at $14.580-$19.94 per share) 292,166 17.895 90,000 14.714
Exercised (at $3.08-$9.12 per share) (95,569) 8.216 (409,306) 5.874
Cancelled (at $11.16 per share) (62,632) 11.160 -- --
- ----------------------------------------------------------------------------------------------------
Outstanding at
December 31, 1996 605,620 $12.122 1,326,914 $6.189
====================================================================================================
</TABLE>
58 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
<PAGE> 94
At December 31, 1996, the total shares outstanding and exercisable under
these option plans were as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ---------------------------------------------------------------------- ----------------------------------
WEIGHTED WEIGHTED
NUMBER AVERAGE AVERAGE AGGERGATE NUMBER AVERAGE AGGERGATE
RANGE OF OUTSTANDING REMAINING EXERCISE OPTION EXERCISABLE EXERCISE OPTION
EXERCISE PRICES AT 12/31/96 CONTRACTUAL LIFE PRICE PRICE AT 12/31/96 PRICE PRICE
- ----------------------------------------------------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$3.08-$3.19 278,776 3.96years $ 3.088 $ 860,831 278,776 $ 3.088 $ 860,831
$3.625-$3.88 497,396 4.80years 3.817 1,898,470 497,396 3.817 1,898,470
$4.31-$8.445 324,252 6.24years 6.446 2,090,199 324,252 6.446 2,090,199
$8.78-$10.005 449,948 4.50years 9.214 4,145,730 449,948 9.214 4,145,730
$14.580-$17.155 308,166 10.47years 16.488 5,081,093 179,000 16.021 2,867,825
$19.53-$19.94 74,000 10.97years 19.885 1,471,460 -- N/A --
- ----------------------------------------------------------------------- ----------------------------------
Total 1,932,538 5.97years $ 8.045 $15,547,783 1,729,372 $ 6.860 $11,863,055
======================================================================= ==================================
</TABLE>
On January 1, 1996 BancGroup adopted Statement of Financial Accounting
Standards No. 123, "Accounting for Stock Based Compensation" (SFAS 123). As
permitted by SFAS 123, BancGroup has chosen to apply APB Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related Interpretations
in accounting for its Plans. Accordingly, no compensation cost has been
recognized for options granted under the Incentive Plan. For the Nonqualified
Plan, compensation expense is recognized for the difference between exercise
price and fair market value of the shares at date of issue. Had compensation
cost for BancGroup's Plans been determined based on the fair value at the grant
dates for awards under the Plan consistent with the method of SFAS 123,
BancGroup's net income and net income per share would have been reduced to the
pro forma amounts indicated below:
<TABLE>
<CAPTION>
As Pro
Reported Forma
================================================
1996
-------
<S> <C> <C>
Net income $49,383 $48,378
Earnings per share (primary) $ 1.30 $ 1.27
1995
--------
Net income $44,801 $44,597
Earnings per share (primary) $ 1.23 $ 1.23
------------------------------------------------
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 1996 and 1995, respectively:
dividend yield of 3.15% and 4.98%; expected volatility of 34% for both years;
risk-free interest rates of 6.04% and 6.63%; and expected lives of ten
years.The weighted average fair values of options granted during 1996 and 1995
was $6.51 and $4.78, respectively.
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 their election annually. 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 1996, 1995 and 1994, respectively, 31,710, 34,048 and 28,534
shares of Common Stock were issued under the Directors Plan, representing
approximately $328,000, $326,000 and $284,000 in directors' fees for 1996,
1995 and 1994, 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 99,640 shares outstanding of which
10,520 shares were vested at December 31, 1996.
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 22,706 shares issued and outstanding under
this Plan at December 31, 1996.
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 59
<PAGE> 95
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,
1996, will have a materially adverse effect on BancGroup's financial
statements.
16. RELATED PARTIES
Most of the insurance coverage for 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 $1,651,000, $1,712,000 and $2,242,000 in 1996, 1995 and 1994,
respectively.
BancGroup, Colonial Bank and CMC 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 $3,252,000, $3,100,000 and $2,300,000 in 1996, 1995 and 1994,
respectively.
During 1996, 1995 and 1994, BancGroup and its subsidiaries paid or accrued
fees of approximately $1,475,000, $1,306,000 and $1,326,000, 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 amounts were included in Other Expense:
<TABLE>
<CAPTION>
(In thousands) 1996 1995 1994
------------------------------------------------
<S> <C> <C> <C>
Stationery, printing,
and supplies $ 4,051 $ 3,540 $ 3,510
Postage 2,527 2,159 1,928
Telephone 4,665 3,762 3,214
Insurance 2,373 1,722 2,059
Legal fees 2,966 2,420 3,081
Advertising and
public relations 5,415 4,197 3,032
FDIC assessment 2,233 4,318 6,277
Other 31,214 29,133 23,219
------------------------------------------------
Total $55,444 $51,251 $46,320
================================================
</TABLE>
18. INCOME TAXES
The components of income taxes were as follows:
<TABLE>
<CAPTION>
(In thousands) 1996 1995 1994
---------------------------------------------
<S> <C> <C> <C>
Currently payable:
Federal $25,831 $24,396 $18,110
State 2,238 2,284 1,311
Deferred (1,235) (2,024) (2,590)
---------------------------------------------
Total $26,834 $24,656 $16,831
=============================================
</TABLE>
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) 1996 1995 1994
---------------------------------------------------
<S> <C> <C> <C>
Tax at statutory rate
on income from
operations $26,676 $24,310 $17,747
Add:
State income taxes, net
of federal tax benefit 1,871 1,519 858
Amortization of net
purchase accounting
adjustments 369 237 465
Other 636 840 497
---------------------------------------------------
Total 29,552 26,906 19,567
===================================================
Deduct:
Nontaxable interest
income 2,702 1,861 1,886
Dividends received
deduction 16 252 233
Other -- 137 617
---------------------------------------------------
Total 2,718 2,250 2,736
---------------------------------------------------
TOTAL INCOME TAXES $26,834 $24,656 $16,831
===================================================
</TABLE>
60 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
<PAGE> 96
The components of BancGroup's net deferred tax asset as of December 31,
1996 and 1995, were as follows:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
-------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Allowance for possible loan
losses $18,233 $16,543
Pension accrual in excess
of contributions 952 755
Accumulated amortization of
mortgage servicing rights 2,384 2,869
Acquisiton related accruals -- 547
Other real estate owned
writedowns 1,301 1,513
Other liabilities and reserves 1,556 1,514
Deferred loan fees, net 310 715
Accelerated tax depreciation 201 --
Other 1,913 2,963
-------------------------------------------------
Total deferred tax asset 26,850 27,419
=================================================
Deferred tax liabilities:
Accelerated tax depreciation -- 459
Cumulative accretion/discount
on bonds 428 510
Differences between financial
reporting and tax bases of net
assets acquired 853 1,330
Stock dividends received 2,106 1,449
Prepaid FDIC assessment 1 407
Loan loss reserve recapture 1,779 2,248
Unrealized gain on securities
available for sale 217 (652)
Other 1,548 1,984
-------------------------------------------------
Total deferred tax liability 6,932 7,735
=================================================
Net deferred tax asset $19,918 $19,684
=================================================
</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 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, 1996 and 1995. 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, 1996 and 1995.
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 61
<PAGE> 97
<TABLE>
<CAPTION>
The estimated fair values of BancGroup's financial instruments at December 31, 1996 and 1995 are as follows:
1996 1995
---------------------------------------------------------------------------------------
CARRYING FAIR Carrying Fair
(In thousands) AMOUNT VALUE Amount Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and short-term investments $ 243,192 $ 243,192 $ 245,510 $ 245,510
Securities available for sale 440,115 440,115 359,127 359,127
Investment securities 282,110 284,164 291,299 294,609
Mortgage loans held for sale 157,966 160,060 112,203 113,669
Mortgage servicing rights and
excess servicing fees 107,797 152,064 88,165 130,156
Loans 4,074,633 3,521,514
Less: allowance for loan losses (50,761) (45,215)
- -----------------------------------------------------------------------------------------------------------------------------------
Loans, net 4,023,872 4,087,519 3,476,299 3,529,631
- -----------------------------------------------------------------------------------------------------------------------------------
Total $5,255,052 $5,367,114 $4,572,603 $4,672,702
===================================================================================================================================
Financial liabilities:
Deposits $4,113,934 $4,127,114 $3,700,715 $3,710,403
Short-term borrowings 841,262 841,262 616,681 616,681
Long-term debt 39,092 42,121 47,688 55,065
- -----------------------------------------------------------------------------------------------------------------------------------
Total $4,994,288 $5,010,497 $4,365,084 $4,382,149
===================================================================================================================================
</TABLE>
20. CONDENSED FINANCIAL INFORMATION
OF THE COLONIAL BANCGROUP, INC.
(PARENT COMPANY ONLY)
<TABLE>
<CAPTION>
STATEMENT OF CONDITION
December 31
--------------------------------------------------------------
(In thousands) 1996 1995
==============================================================
<S> <C> <C>
ASSETS:
Cash* $ 1,238 $ 5,977
Investment in subsidiaries* 407,972 359,647
Intangible assets 3,541 4,234
Other assets 4,523 6,070
--------------------------------------------------------------
Total assets $417,274 $375,928
==============================================================
LIABILITIES AND SHAREHOLDERS' EQUITY:
Short-term borrowings $ 1,033 $ 1,000
Subordinated debt 8,612 18,545
Other long-term debt 14,116 16,499
Other liabilities 6,517 2,953
Shareholders' equity 386,996 336,931
--------------------------------------------------------------
Total liabilities and
shareholders' equity $417,274 $375,928
==============================================================
*Eliminated in consolidation.
STATEMENT OF OPERATIONS
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31
-------------------------------------------------------------
(In thousands) 1996 1995 1994
=============================================================
<S> <C> <C> <C>
INCOME:
Cash dividends from
subsidiaries* $16,470 $17,019 $14,357
Interest and dividends
on short-term investments* 203 111 87
Other income 2,210 1,430 1,933
-------------------------------------------------------------
Total income 18,883 18,560 16,377
=============================================================
EXPENSES:
Interest 1,917 2,698 2,486
Salaries and
employee benefits 3,447 754 928
Occupancy expense 347 298 293
Furniture and
equipment expense 96 73 111
Amortization of
intangible assets 442 459 460
Other expenses 5,432 4,753 5,699
-------------------------------------------------------------
Total expenses 11,681 9,035 9,977
=============================================================
Income before income taxes,
extraordinary item and
equity in undistributed
net income of subsidiaries 7,202 9,525 6,400
Income tax benefit 3,057 2,406 2,941
-------------------------------------------------------------
Income before equity in
undistributed net
income of subsidiaries 10,259 11,931 9,341
Equity in undistributed
net income of subsidiaries* 39,124 32,870 24,534
Net income $49,383 $44,801 $33,875
=============================================================
</TABLE>
*Eliminated in consolidation.
62 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
<PAGE> 98
20. CONDENSED FINANCIAL INFORMATION
OF THE COLONIAL BANCGROUP, INC.
(continued) (PARENT COMPANY ONLY)
<TABLE>
<CAPTION>
STATEMENT OF CASH FLOWS
Years Ended December 31
(In thousands) 1996 1995 1994
================================================================
<S> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income $49,383 $44,801 $33,875
Adjustments to
reconcile net income
to net cash provided by
operating activities:
Gain on sale of assets -- -- (7)
Depreciation, amorti-
zation, and accretion 544 1,099 1,072
Decrease (increase) in
prepaids and other
assets (852) (2,460) 13
(Decrease) increase
in accrued income
taxes (65) 3,387 (727)
(Decrease) increase
in accrued expenses 251 1,735 (19)
Undistributed
earnings
of subsidiaries* (42,881) (32,870) (24,533)
----------------------------------------------------------------
Total adjustments (43,003) (29,108) (24,201)
----------------------------------------------------------------
Net cash provided by
operating activities 6,380 15,692 9,674
----------------------------------------------------------------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Capital expenditures (124) (175) (343)
Purchase of securities -- (400) --
Proceeds from sale
of premises and
equipment 3,000 538 399
Net repayment (investment)
in subsidiaries* 2,692 (8,468) (5,909)
----------------------------------------------------------------
Net cash provided by
(used in) investing
activities 5,568 (8,505) (5,853)
----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF CASH FLOWS (continued)
Years Ended December 31
(In thousands) 1996 1995 1994
================================================================
<S> <C> <C> <C>
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from issuance
of subordinated debt -- 1,425 --
Proceeds from issuance
of long-term debt -- 6,249 --
Repayment of
long-term debt (2,350) (1,000) (2,000)
Proceeds from
issuance of
common stock 3,719 2,418 6,953
Dividends paid (18,084) (12,340) (9,170)
Other, net 28 (50) (522)
----------------------------------------------------------------
Net cash used in
financing activities (16,687) (3,298) (4,739)
----------------------------------------------------------------
Net (decrease) increase
in cash and cash
equivalents (4,739) 3,889 (918)
Cash and cash
equivalents at
beginning of year 5,977 2,088 3,006
----------------------------------------------------------------
CASH AND CASH
EQUIVALENTS AT END
OF YEAR* $1,238 $5,977 $2,088
================================================================
Supplemental
disclosure of cash
flow information:
Cash paid (received)
during the year for:
Interest $1,874 $2,743 $2,490
Income taxes (2,493) (274) (860)
================================================================
</TABLE>
*Eliminated in consolidation.
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 63
<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.
333-78118), Form S-8 (File No. 333-10475), Form S-8 (File No. 333-14883), Form
S-3 (File No. 33-5665), and Form S-3 (File No. 33-62071) of our report dated
February 20, 1997, on our audits of the consolidated financial statements of
The Colonial BancGroup, Inc., as of December 31, 1996 and 1995, and for each of
the three years in the period ended December 31, 1996, and our report dated
February 20, 1997, except for Note 2, as to which the date is March 5, 1997, on
our audits of the supplemental consolidated financial statements of The
Colonial BancGroup, Inc., as of December 31, 1996 and 1995, and for each of the
three years in the period ended December 31, 1996, which reports are included
on this Form 8-K.
COOPERS & LYBRAND L.L.P.
Montgomery, Alabama
April 11, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 222,059
<INT-BEARING-DEPOSITS> 5,143
<FED-FUNDS-SOLD> 15,990
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 440,115
<INVESTMENTS-CARRYING> 282,110
<INVESTMENTS-MARKET> 284,164
<LOANS> 4,074,633
<ALLOWANCE> 50,761
<TOTAL-ASSETS> 5,466,851
<DEPOSITS> 4,113,934
<SHORT-TERM> 841,262
<LIABILITIES-OTHER> 85,567
<LONG-TERM> 39,092
0
0
<COMMON> 93,864
<OTHER-SE> 293,132
<TOTAL-LIABILITIES-AND-EQUITY> 5,466,851
<INTEREST-LOAN> 348,563
<INTEREST-INVEST> 40,530
<INTEREST-OTHER> 2,864
<INTEREST-TOTAL> 391,957
<INTEREST-DEPOSIT> 158,591
<INTEREST-EXPENSE> 199,953
<INTEREST-INCOME-NET> 192,004
<LOAN-LOSSES> 11,783
<SECURITIES-GAINS> (1,512)
<EXPENSE-OTHER> 174,822
<INCOME-PRETAX> 76,217
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 49,383
<EPS-PRIMARY> 1.30
<EPS-DILUTED> 1.28
<YIELD-ACTUAL> 4.16
<LOANS-NON> 21,982
<LOANS-PAST> 6,695
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 146,000
<ALLOWANCE-OPEN> 45,215
<CHARGE-OFFS> 11,505
<RECOVERIES> 4,650
<ALLOWANCE-CLOSE> 50,761
<ALLOWANCE-DOMESTIC> 50,761
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,089
</TABLE>
