<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 1998 COMMISSION FILE NUMBER 1-13508
[LOGO] THE COLONIAL BANCGROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 63-0661573
------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One Commerce Street
Montgomery, Alabama 36104
----------------------------------------
(Address of principle executive offices)
(334) 240-5000
-------------------------------
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to the filing
requirements for at least the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Class Outstanding at July 31, 1998
----------------------------- ----------------------------
Common Stock, $2.50 Par Value 49,146,355
<PAGE> 2
THE COLONIAL BANCGROUP, INC.
INDEX
<TABLE>
<CAPTION>
Page Number
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Condition - June 30, 1998, December 31, 1997 and June 30, 1997................1
Consolidated Statements of Income - Six months ended June 30, 1998 and June 30, 1997 and
three months ended June 30, 1998 and June 30, 1997.......................................................2
Consolidated Statements of Comprehensive Income - Six months ended June 30, 1998
and June 30, 1997 and three months ended June 30, 1998 and June 30, 1997.................................3
Consolidated Statements of Cash Flows - Six months ended June 30, 1998 and June 30, 1997.................4
Notes to Consolidated Financial Statements - June 30, 1998...............................................5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....................7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.......................................................................................19
Item 6. Exhibits and Reports on Form 8-K........................................................................19
SIGNATURES......................................................................................................20
</TABLE>
<PAGE> 3
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. Factors that
may cause actual results to differ materially from those contemplated by such
forward-looking statements include, among other things, the following
possibilities: (i) deposit attrition, customer loss, or revenue loss in the
ordinary course of business; (ii) increases in competitive pressure in the
banking industry; (iii) costs or difficulties related to the integration of the
businesses of BancGroup and the institutions acquired are greater than
expected; (iv) changes in the interest rate environment which reduce margins
(v) general economic conditions, either nationally or regionally, that are less
favorable than expected, resulting in, among other things, a deterioration in
credit quality; (vi) changes which may occur in the regulatory environment;
(vii) a significant rate of inflation (deflation); and (viii) changes in the
securities markets. When used in this Report, the words "believes,"
"estimates," "plans," "expects," "should," "may," "might," "outlook," and
"anticipates," and similar expressions as they relate to BancGroup (including
its subsidiaries), or its management are intended to identify forward-looking
statements.
iii
<PAGE> 4
THE COLONIAL BANCGROUP, Inc. AND SUBSIDIARIES
Condensed Consolidated Statements of Condition
(Unaudited)
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, JUNE 30,
1998 1997* 1997*
----------- ---------- ----------
<S> <C> <C> <C>
ASSETS:
Cash and due from banks $ 344,388 $ 300,396 $ 233,313
Interest-bearing deposits in banks 20,630 41,897 34,225
Securities held for trading -- -- --
Securities available for sale 1,117,946 594,545 615,069
Investment securities 235,297 279,381 339,151
Mortgage loans held for sale 532,140 225,331 165,476
Loans, net of unearned income 6,027,489 5,670,009 5,174,845
Less:
Allowance for possible loan losses (72,782) (68,595) (66,091)
---------- ---------- ----------
Loans, net 5,954,707 5,601,414 5,108,754
Premises and equipment, net 156,618 148,068 135,419
Excess of cost over tangible and identified intangible
assets acquired, net 78,688 69,200 41,097
Mortgage servicing rights 174,693 141,865 125,375
Other real estate owned 10,624 14,491 12,853
Accrued interest and other assets 146,802 146,179 107,000
---------- ---------- ----------
Total $8,772,533 $7,562,767 $6,917,732
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits $6,193,818 $5,880,363 $5,460,471
FHLB short-term borrowings 640,000 420,000 567,000
Other short-term borrowings 453,482 299,419 152,911
Subordinated debt 12,716 6,088 6,676
Trust preferred securities 70,000 70,000 70,000
FHLB long-term debt 448,422 234,830 60,516
Other long-term debt 200,075 4,334 6,363
Other liabilities 152,249 94,182 92,409
---------- ---------- ----------
Total liabilities 8,170,762 7,009,216 6,416,346
---------- ---------- ----------
SHAREHOLDERS' EQUITY:
Preference Stock, $2.50 par value; 1,000,000 shares
authorized, none issued -- -- --
Common Stock,** $2.50 par value; 200,000,000 shares
authorized, 49,116,133, 48,013,661 and 47,627,112
shares issued and outstanding at June 30, 1998,
December 31, 1997 and June 30, 1997 respectively 122,790 120,034 119,069
Treasury stock (671,165 shares) -- -- (15,887)
Additional paid in capital 238,749 220,853 217,726
Retained earnings 238,996 212,428 181,402
Unearned compensation (3,282) (1,751) (1,956)
Unrealized gains on securities available
for sale, net of taxes 4,518 1,987 1,032
---------- ---------- ----------
Total shareholders' equity 601,771 553,551 501,386
---------- ---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $8,772,533 $7,562,767 $6,917,732
========== ========== ==========
</TABLE>
*See Note A.
**See Note E.
See Notes to the Unaudited Condensed Consolidated Financial Statements.
1
<PAGE> 5
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- --------------------------
1998 1997* 1998 1997*
-------- -------- -------- --------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $272,302 $231,196 $138,857 $118,657
Interest on investments 32,903 30,111 18,483 15,386
Other interest income 1,457 2,096 647 737
-------- -------- -------- --------
Total interest income 306,662 263,403 157,987 134,780
-------- -------- -------- --------
INTEREST EXPENSE:
Interest on deposits 116,065 105,751 58,406 54,120
Interest on short-term borrowings 22,038 19,390 12,171 9,388
Interest on long-term debt 15,338 4,647 9,185 2,691
-------- -------- -------- --------
Total interest expense 153,441 129,788 79,762 66,199
-------- -------- -------- --------
NET INTEREST INCOME 153,221 133,615 78,225 68,581
Provision for possible loan losses 7,543 7,288 3,793 3,991
-------- -------- -------- --------
Net Interest Income After Provision for
Possible Loan Losses 145,678 126,327 74,432 64,590
-------- -------- -------- --------
NONINTEREST INCOME:
Mortgage servicing and origination fees 19,109 16,331 9,729 8,402
Service charges on deposit accounts 16,669 13,891 8,565 6,976
Other charges, fees and commissions 4,346 3,740 2,261 1,796
Securities gains (losses), net 991 (35) 820 (17)
Other income 16,305 8,597 9,785 5,155
-------- -------- -------- --------
Total noninterest income 57,420 42,524 31,160 22,312
-------- -------- -------- --------
NONINTEREST EXPENSE:
Salaries and employee benefits 50,692 44,739 25,774 22,584
Occupancy expense of bank premises, net 12,680 10,464 6,435 5,336
Furniture and equipment expenses 11,397 8,619 5,770 4,435
Amortization of mortgage servicing rights 11,820 7,712 6,932 4,013
Amortization of intangible assets 2,415 1,311 1,245 675
Acquisition and restructuring costs 7,596 2,634 1,477 1,877
Year 2000 expense 2,998 -- 668 --
Other expense 35,252 30,684 18,504 15,955
-------- -------- -------- --------
Total noninterest expense 134,850 106,163 66,805 54,875
-------- -------- -------- --------
Income before income taxes 68,248 62,688 38,787 32,027
Applicable income taxes 25,837 23,008 14,685 11,930
-------- -------- -------- --------
Net Income $ 42,411 $ 39,680 $ 24,102 $ 20,097
======== ======== ======== ========
Earnings per share**:
Basic $ 0.87 $ 0.85 $ 0.49 $ 0.43
Diluted $ 0.85 $ 0.82 $ 0.48 $ 0.42
</TABLE>
*See Note A.
**See Note E.
See Notes to the Unaudited Condensed Consolidated Financial Statements.
2
<PAGE> 6
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ ------------------------
1998 1997* 1998 1997*
------- ------- ------- -------
<S> <C> <C> <C> <C>
NET INCOME:
Other comprehensive income, net of taxes: $24,102 $20,097 $42,411 $39,680
Unrealized gains on securities available for sale arising
during the period, net of taxes 2,267 3,798 3,041 753
Less: reclassification adjustment for net (gains) losses
included in net income (390) 40 (511) 52
------- ------- ------- -------
Comprehensive income $25,979 $23,935 $44,941 $40,485
======= ======= ======= =======
</TABLE>
*See Note A.
See Notes to the Unaudited Condensed Consolidated Financial Statements.
3
<PAGE> 7
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------------------
1998 1997*
---------- ---------
<S> <C> <C>
Net cash provided by (used in) operating activities ($219,876) $ 18,350
---------- ---------
Cash flows from investing activities:
Proceeds from maturities of securities available for sale 129,089 67,705
Proceeds from sales of securities available for sale 171,365 23,763
Purchase of securities available for sale (795,334) (65,025)
Proceeds from maturities of investment securities 108,161 88,829
Purchase of investment securities (64,188) (105,467)
Net increase in loans (252,959) (248,429)
Cash received in bank acquisitions 17,062 15,023
Capital expenditures (17,864) (24,935)
Proceeds from sale of other real estate owned 6,015 4,357
Other, net 1,131 (2)
---------- ---------
Net cash used in investing activities (697,522) (244,181)
---------- ---------
Cash flows from financing activities:
Net increase in demand, savings, and time deposits 168,728 238,234
Net increase (decrease) in federal funds purchased,
repurchase agreements and other short-term borrowings 374,291 (102,640)
Proceeds from issuance of long-term debt 409,696 70,000
Repayment of long-term debt (591) (17,226)
Proceeds from issuance of common stock 3,840 7,398
Acquisition of treasury stock 0 (15,887)
Dividends paid (15,842) (13,523)
---------- ---------
Net cash provided by financing activities 940,122 166,356
---------- ---------
Net increase (decrease) in cash and cash equivalents 22,724 (59,475)
Cash and cash equivalents at beginning of year 342,293 327,013
---------- ---------
Cash and cash equivalents at June 30 $365,017 $267,538
========== =========
Supplemental Disclosure of cash flow information:
Cash paid during the year for:
Interest $151,540 $114,417
Income taxes 21,289 2,866
Non-cash investing activities:
Transfer of loans to other real estate $ 4,706 $ 6,395
Origination of loans for the sale of other real estate 438 --
Non-cash financing activities:
Conversion of subordinated debentures $ 1,087 $ 1,927
Assets acquired in business combinations 152,988 225,799
Liabilities assumed in business combinations 146,894 207,504
</TABLE>
*See Note A.
See Notes to the Unaudited Condensed Consolidated Financial Statements.
4
<PAGE> 8
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - ACCOUNTING POLICIES/RESTATEMENT
The Colonial BancGroup, Inc. ("BancGroup") and its subsidiaries have not
changed their accounting and reporting policies from those stated in the 1997
annual report. These unaudited interim financial statements should be read in
conjunction with the audited financial statements and footnotes included in
BancGroup's 1997 annual report on Form 10-K and BancGroup's 8-K filing dated
February 2, 1998 disclosing the amended and restated financial statements for
December 31, 1997 to give retroactive effect to the February 1998
pooling-of-interests method business combinations with United American
Holding Corporation, First Central Bank and South Florida Banking Corp. The
June 30, 1997 and December 31, 1997 financial statement amounts included
herein have been restated to give retroactive effect to the
pooling-of-interests business combination with Commercial Bank of Nevada.
In the opinion of BancGroup, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (consisting only
of normal recurring accruals) necessary to present fairly the financial
position as of June 30, 1998 and 1997 and the results of operations and cash
flows for the interim periods ended June 30, 1998 and 1997. All 1998 interim
amounts are subject to year-end audit, and the results of operations for the
interim period herein are not necessarily indicative of the results of
operations to be expected for the year.
NOTE B - BUSINESS COMBINATIONS
On February 2, 1998, United American Holding Corporation ("United") was
merged into BancGroup. United's subsidiary, United American Bank of Central
Florida was merged into BancGroup's existing subsidiary bank, Colonial Bank.
At December 31, 1997, United had approximately $275 million in assets and
deposits and other liabilities of $252 million. United operated nine offices
in Orange, Seminole, and Osceola counties, Florida. This business
combination was accounted for as a pooling of interests and the financial
statements have been restated accordingly.
On February 5, 1998, ASB Bancshares, Inc. ("ASB") was merged into
BancGroup. ASB's subsidiary, Ashville Savings Bank was merged into
BancGroup's existing subsidiary bank, Colonial Bank. On February 5, 1998,
ASB had approximately $159 million in assets and deposits and other
liabilities of $138 million. ASB operated nine branches in Blount, Etowah
and St. Clair counties, Alabama. This business combination was accounted for
as a purchase and the results of operations are included in the accompanying
financial statements only from the date of consummation forward.
On February 11, 1998, First Central Bank was merged into BancGroup's
existing subsidiary bank, Colonial Bank. At December 31, 1997, First Central
Bank had approximately $63 million in assets and deposits and other
liabilities of $53 million. First Central Bank operated a single branch
located in St. Petersburg, Florida. This business combination was accounted
for as a pooling of interests and the financial statements have been
restated accordingly.
On February 12, 1998, South Florida Banking Corp. ("SFB") was merged into
BancGroup. SFB's subsidiary, First National Bank of Florida at Bonita
Springs was merged into BancGroup's existing subsidiary bank, Colonial Bank.
At December 31, 1997, SFB had approximately $256 million in assets and
deposits and other liabilities of $238 million. SFB operated twelve branches
in Lee, Collier, and Hendry counties, Florida. This business combination was
accounted for as a pooling of interests and the financial statements have
been restated accordingly.
On June 15, 1998, Commercial Bank of Nevada ("CBN") was merged into
BancGroup's existing subsidiary bank, Colonial Bank. At March 31, 1998, CBN
had approximately $131 million in assets and deposits and other liabilities
of $121 million. CBN operated three offices in Las Vegas, Nevada. This
business combination was accounted for as a pooling of interests and the
financial statements have been restated accordingly.
On June 18, 1998, BancGroup purchased certain assets totaling $8,167,609
and assumed certain liabilities, primarily deposits, totaling $8,870,601 of
the Wade Green Branch of Premier Bank located in Atlanta, Georgia.
Presented below is BancGroup's summary operating information for the six
months ended June 30, 1997, showing the effect of business combinations
described above.
<TABLE>
<CAPTION>
As Previously Effect of Currently
Reported Poolings Reported
------------------------------------------------
<S> <C> <C> <C>
Net interest income $114,229 $19,386 $133,615
Non interest income 39,627 2,897 42,524
Net income 36,329 3,351 39,680
</TABLE>
On March 27, 1998, BancGroup entered into a definitive agreement with CNB
Holding Company ("CNB"). CNB is a Florida corporation and is a holding
company for Commercial National Bank located in Daytona Beach, Florida. CNB
will merge with BancGroup and following such merger Commercial National Bank
will merge with BancGroup's existing subsidiary bank, Colonial Bank.
BancGroup expects to issue a maximum of 937,227 shares of its Common Stock
(depending upon the market value at the time of such merger) to the
stockholders of CNB. This transaction is
5
<PAGE> 9
subject to, among other things, approval by appropriate regulatory
authorities and is expected to be accounted for as a pooling of interests. At
June 30, 1998, CNB had assets of $89.8 million, deposits of $81.1 million and
stockholders' equity of $8.5 million.
On May 5, 1998, BancGroup entered into a definitive agreement with
FirstBank ("FirstBank"). FirstBank is located in Dallas, Texas. CBG
Acquistion Corp., a subsidiary of BancGroup, will be merged into FirstBank,
and FirstBank will become a banking subsidiary of BancGroup. BancGroup
expects to issue approximately 1,200,000 shares of its Common Stock
(depending upon the market price at the time of such merger) to the
stockholders of FirstBank. This transaction is subject to, among other
things, approval by the stockholders of FirstBank and by the appropriate
regulatory authorities and is expected to be accounted for as a pooling of
interests. At June 30, 1998, FirstBank had assets of $172.9 million,
deposits of $149.5 million and stockholders' equity of $9.4 million.
On May 15, 1998, BancGroup entered into a definitive agreement with First
Macon Bank & Trust Company ("First Macon"). First Macon is located in Macon,
Georgia. First Macon will merge with BancGroup's existing subsidiary bank,
Colonial Bank. BancGroup expects to issue a maximum of 1,844,500 shares of
its Common Stock (depending upon the market price at the time of such
merger) to the stockholders of First Macon. This transaction is subject to,
among other things, approval by the stockholders of First Macon and by the
appropriate regulatory authorities and is expected to be accounted for as a
pooling of interests. At June 30, 1998, First Macon had assets of $199.1
million, deposits of $175.5 million and stockholders' equity of $15.8
million.
On May 21, 1998, BancGroup entered into a definitive agreement with Prime
Bank of Central Florida ("Prime"). Prime is located in Titusville, Florida.
Prime will merge with BancGroup's existing subsidiary bank, Colonial Bank.
BancGroup expects to issue a maximum of 661,989 shares of its Common Stock
(depending upon the market price at the time of such merger) to the
stockholders of Prime. This transaction is subject to, among other things,
approval by the stockholders of Prime and approval by appropriate regulatory
authorities and is expected to be accounted for as a pooling of interests. At
June 30, 1998, Prime had assets of $71.6 million, deposits of $64.4 million
and stockholders' equity of $6.8 million.
On June 16, 1998, BancGroup entered into a definitive agreement with
InterWest Bancorp ("InterWest"). InterWest owns 85 percent of InterWest Bank
as well as 100 percent of InterWest Mortgage, both of which are located in
Reno, Nevada. InterWest Bank will merge with BancGroup's existing subsidiary
bank, Colonial Bank. InterWest Mortgage will become a subsidiary of Colonial
Mortgage Company. BancGroup expects to issue approximately 735,000 shares of
its Common Stock (depending upon the market price at the time of such merger)
to the stockholders of InterWest. This transaction is subject to, among other
things, approval by the stockholders of InterWest and approval by appropriate
regulatory authorities and is expected to be accounted for as a pooling of
interests. At June 30, 1998, InterWest had assets of $130.4 million, deposits
of $115.7 and stockholders' equity of $7.7 million.
NOTE C - COMMITMENTS AND CONTINGENCIES
BancGroup and its subsidiaries are from time to time defendants in legal
actions arising from normal business activities. Management does not
anticipate that the ultimate liability arising from litigation outstanding
at June 30, 1998, will have a materially adverse effect on BancGroup's
financial statements.
NOTE D - Recent ACCOUNTING Pronouncements
On January 1, 1998, BancGroup adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities", which
had been delayed under SFAS No. 127, "Deferral of the Effective Date of
Certain Provisions of FASB Statement No. 125." The deferred provisions
related to repurchase agreements, dollar-roll transactions, securities
lending, and similar transactions. The adoption of the provisions of SFAS
No. 125 as amended by SFAS No. 127 resulted in no material impact on
BancGroup's financial condition or results of operations.
On January 1, 1998, BancGroup adopted SFAS No. 130, "Reporting of
Comprehensive Income," which establishes standards for reporting and display
of comprehensive income and its components (revenues, expenses, gains, and
losses) in a full set of financial statements. This statement also requires
that all items that are required to be recognized under accounting standards
as componenets of comprehensive income be reported in a financial statement
that is displayed with the same prominence as other financial statements.
This standard is effective for fiscal years beginning after December 15,
1997 and has been implemented herein. Reclassification of financial
statements for earlier periods provided for comparative purposes is
required. The adoption of SFAS No. 130 did not have a material impact on
BancGroup's financial condition or results of operations.
On January 1, 1998, BancGroup adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information," which establishes
standards for the way that public business enterprises report information
about operating segments in annual financial statements and requires that
those enterprises report selected information about operating segments in
interim financial reports issued to shareholders. This statement also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. Under SFAS No. 131, BancGroup reports
two segments, commercial and mortgage banking.
In February, 1998, the Financial Accounting Standards Board issued SFAS
No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits," which revises employers' disclosures about pension costs and
other post-retirement benefit plans. It does not change the measurement or
recognition of these plans but standardizes the disclosure requirements for
pension and other postretirement benefits to the extent practicable,
requires additional information on changes in the benefit obligations and
fair value of plan assets that will facilitate financial analysis and
eliminates certain disclosures no longer useful. This statement is effective
for fiscal years beginning after December 15, 1997.
On June 15, 1998, the Financial Accounting Standards Board issued SFAS
No. 133, "Accounting for Derivative
6
<PAGE> 10
Instruments and Hedging Activities," which standardizes the accounting for
derivative instruments by requiring that all derivatives be recognized as
assets and liabilities and measured at fair value. This statement is
effective for fiscal years beginning after June 15, 1999.
NOTE E - STOCK SPLIT
On July 15, 1998, BancGroup's Board of Directors declared a two-for-one
stock split which is to be effected in the form of a 100 percent stock
dividend to be distributed August 14, 1998. The stated par value of each
share will not change from $2.50. Accordingly, all prior period information
will be 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 will be retroactively restated to reflect
the stock split. The following table reflects the impact of the stock split
on earnings per share for the periods indicated:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE THREE
MONTHS ENDED MONTHS ENDED
JUNE 30 JUNE 30
1998 1997 1998 1997
---------------------- -----------------------
<S> <C> <C> <C> <C>
Basic $0.43 $0.42 $0.25 $0.21
Diluted $0.43 $0.41 $0.24 $0.21
</TABLE>
7
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION:
Ending balances of total assets, securities, mortgage loans held for
sale, net loans, mortgage servicing rights, deposits, and long term debt
changed for the six months and twelve months ended June 30, 1998,
respectively, as follows (in thousands):
<TABLE>
<CAPTION>
December 31, 1997 June 30, 1997
to June 30, 1998 to June 30, 1998
---------------------- -----------------------
Increase Increase
---------------------- -----------------------
Amount % Amount %
---------------------- -----------------------
ASSETS
<S> <C> <C> <C> <C>
Colonial Bank $ 869,377 12.1% $1,433,573 21.7%
CMC 338,352 86.7 418,740 135.0
Other 2,037 15.0 2,488 18.9
---------- ----- ---------- -----
Total assets $1,209,766 16.0 $1,854,801 26.8
Securities 479,317 54.8 399,023 41.8
Mortgage loans held for sale 306,809 136.2 366,664 221.6
Loans, net of unearned income 357,480 6.3 852,644 16.5
Mortgage Servicing Rights 32,828 23.1 49,318 39.3
Deposits 313,455 5.3 733,347 13.4
Long term debt 415,961 131.9 587,658 409.4
</TABLE>
ASSETS:
BancGroup's assets as restated have increased 26.8% and 16.0% since June
30, 1997 and December 31, 1997, respectively. The Company's strategy is to
increase its asset size both internally and through acquisition efforts.
BancGroup has concentrated on expanding into growth markets by merging with
banks that have strong local management. BancGroup has been most successful
with this strategy in Florida. With the merger of CBN in Las Vegas, Nevada
followed by the announcement of the pending mergers with FirstBank in Dallas,
Texas and InterWest in Reno, Nevada, BancGroup has made its first step into
growth markets outside the Southeast. For a number of years, Colonial
Mortgage Company has operated on a national basis focusing on the highest
growth markets. These completed and pending acquisitions represent
BancGroup's strategy to parallel the mortgage company's focus and provide its
banking services in some of these same high growth markets.
SECURITIES:
Investment securities and securities available for sale have increased
$479 million (54.8%) and $399 million (41.8%) from December 31, 1997 and
June 30, 1997, respectively. The increase included $24 million from business
combinations and $10 million from the purchase of preferred stocks. In
addition, BancGroup entered into reverse repurchase arrangements with Morgan
Stanley, Salomon Brothers and First Boston under which it purchased mortgage
backed securities totaling approximately $349 million. These securities are
collateral for $350 million in debt issued in connection with the purchase
of these securities. The remainder of the increase is from normal funding
operations of the Company.
LOANS AND MORTGAGE LOANS HELD FOR SALE:
Loans, net of unearned income, have increased $357 million (6.3%) and
$853 million (16.5%) from December 31, 1997 and June 30, 1997, respectively.
The increase from December 31, 1997 and June 30, 1997 included $111 million
and $278 million attributable to purchase method business combinations,
respectively.
Mortgage loans held for sale are funded on a short-term basis (less than 90
days) while they are being packaged for sale in the secondary market by
Colonial Mortgage Company, a wholly owned subsidiary of Colonial Bank. Loans
originated amounted to approximately $1.7 billion and $659.7 million and
sales thereof amounted to approximately $1.5 billion and $653.2 million
during the six months ended June 30, 1998 and 1997, respectively. The
increase in originations in 1998 was primarily due to a decrease in rates
which resulted in an increase in loan refinancings.
8
<PAGE> 12
<TABLE>
<CAPTION>
GROSS LOANS BY CATEGORY June 30, Dec. 31, June 30,
(In thousands) 1998 1997 1997
---------- ---------- ----------
<S> <C> <C> <C>
Commercial, financial, and agricultural $ 832,697 $ 703,113 $ 680,815
Real estate-commercial 1,683,255 1,540,868 1,308,982
Real estate-construction 731,710 703,271 588,475
Real estate-residential 2,360,559 2,338,170 2,230,039
Installment and consumer 319,602 314,618 306,581
Other 100,000 70,661 60,660
Total loans $6,027,823 $5,670,701 $5,175,552
</TABLE>
Loans, excluding the impact of acquisitions, grew $220 million or 15.1% on
an annualized basis, in the second quarter of 1998 versus $27 million or
1.97% annualized growth in the first quarter of 1998. The majority of the
growth has been in loans collateralized by commercial real estate which has
increased approximately $374 million since June 30, 1997 and $142 million
since December 31, 1997. Residential real estate loans, excluding purchase
method business combinations, decreased $74 million since December 31, 1997.
This decline in residential real estate is primarily attributable to the
refinancing of these predominately adjustable rate loans to fixed rates. The
Company generally sells fixed rate loans in the secondary markets resulting
in net reductions in outstanding balances. Due to current market rates
for fixed mortgage loans, ARM loans are not in demand and run-off is expected
to continue at a slower pace through the third quarter and then remain
constant. These loans are concentrated in various areas in Alabama, the
metropolitan Atlanta market in Georgia as well as the Company's markets in
Florida.
Allocations of the allowance for possible loan losses are made on an
individual loan basis for all identified potential problem loans with a
percentage allocation for the remaining portfolio. The allocations of the
total allowance represent an approximation of the reserves for each category
of loans based on management's evaluation of risk within each loan type.
ALLOCATION OF THE ALLOWANCE FOR POSSIBLE LOAN LOSSES
<TABLE>
<CAPTION>
Percent of Percent of Percent of
JUNE 30, Loans to Dec. 31, Loans to June 30, Loans to
(In thousands) 1998 Total Loans 1997 Total Loans 1997 Total Loans
-------- ----------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial,
and agricultural $16,137 13.8% $13,064 12.4% $12,079 13.1%
Real estate-commercial 27,359 27.9 24,186 27.2 24,040 25.3
Real estate-construction 11,895 12.1 13,297 12.4 12,667 11.4
Real estate-mortgage 11,803 39.2 11,691 41.2 11,150 43.1
Installment and consumer 4,352 5.3 5,102 5.6 5,195 5.9
Other 1,236 1.7 1,254 1.2 960 1.2
------- ----- ------- ----- ------- -----
TOTAL $72,782 100.0% $68,594 100.0% $66,091 100.0%
======= ===== ======= ===== ======= =====
</TABLE>
9
<PAGE> 13
SUMMARY OF LOAN LOSS EXPERIENCE
<TABLE>
<CAPTION>
SIX MONTHS Year Six Months
ENDED Ended Ended
(In thousands) JUNE 30, 1998 Dec. 31, 1997 June 30, 1997
------------- ------------- --------------
<S> <C> <C> <C>
Allowance for possible loan losses - January 1 $68,595 $58,574 $58,574
Charge-offs:
Commercial, financial, and agricultural 1,800 5,461 2,118
Real estate-commercial 900 2,954 183
Real estate-construction 285 433 30
Real estate-residential 798 1,724 534
Installment and consumer 2,961 5,594 2,518
Other 399 693 470
------- ------- -------
Total charge-offs 7,143 16,859 5,853
------- ------- -------
Recoveries:
Commercial, financial, and agricultural 644 993 377
Real estate-commercial 412 1,019 63
Real estate-construction 15 91 67
Real estate-residential 406 244 91
Installment and consumer 1,021 1,794 838
Other 193 134 71
------- ------- -------
Total recoveries 2,691 4,275 1,507
------- ------- -------
Net charge-offs 4,452 12,584 4,346
Addition to allowance charged to operating expense 7,543 15,733 7,288
Allowance added from business combinations 1,096 6,872 4,575
------- ------- -------
Allowance for possible loan losses-end of period $72,782 $68,595 $66,091
======= ======= =======
</TABLE>
Asset quality as measured by nonperforming assets remains strong at 0.73%
of net loans and other real estate. Nonperforming assets have increased $1.5
million from December 31, 1997. The increase in nonperforming assets
resulted from a $5.4 million increase in nonperforming loans which
consists primarily of 3 large commercial real estate credits. The increase
in nonperforming loans was offset by a $3.9 million decrease in other real
estate and repossessions resulting primarily from the sale of a large
commercial real estate property in North Alabama. Management continuously
monitors and evaluates recoverability of problem assets and adjusts loan
loss reserves accordingly. The loan loss reserve is 1.21% of loans at June
30, 1998 and December 31, 1997 as compared to 1.28% at June 30, 1997.
NONPERFORMING ASSETS ARE SUMMARIZED BELOW
<TABLE>
<CAPTION>
(In thousands) JUNE 30, 1998 Dec. 31, 1997 June 30, 1997
------------- ------------- -------------
<S> <C> <C> <C>
Nonaccrual loans $31,921 $27,010 $28,181
Restructured loans 1,395 952 1,063
------- ------- -------
Total nonperforming loans* 33,316 27,962 29,244
Other real estate owned 9,973 13,695 12,471
Repossessions 651 796 382
------- ------- -------
Total nonperforming assets* $43,940 $42,453 $42,097
======= ======= =======
Aggregate loans contractually past due 90 days
for which interest is being accrued 7,146 $ 7,028 $ 3,938
Net charge-offs year-to-date 4,452 $12,584 $ 4,346
RATIOS
Period end:
Total nonperforming assets as a percent of net
loans and other real estate 0.73% 0.75% 0.81%
Allowance as a percent of net loans 1.21% 1.21% 1.28%
Allowance as a percent of nonperforming assets* 166% 162% 157%
Allowance as a percent of nonperforming loans* 218% 245% 226%
For the period ended:
Net charge-offs as a percent of average net loans-
(annualized basis) 0.15% 0.24% 0.17%
</TABLE>
*Total does not include loans contractually past due 90 days or more
which are still accruing interest.
10
<PAGE> 14
Management, through its loan officers, internal loan review staff, and
external examinations by regulatory agencies and independent auditors has
identified approximately $180.6 million of potential problem loans not
included above. The status of these loans is reviewed at least quarterly by
loan officers and the centralized loan review function and annually by
independent auditors and regulatory agencies. In connection with such
reviews, collateral values are updated where considered necessary. If
collateral values are judged insufficient and other sources of repayment
inadequate, the loans are reduced to estimated recoverable amounts through
increases in reserves allocated to the loans or charge-offs. As of June 30,
1998, substantially all of these loans are current with their existing
repayment terms. Given the reserves and the ability of the borrowers to
comply with the existing repayment terms, management believes any exposure
from these potential problem loans has been adequately addressed at the
present time.
The above nonperforming loans and potential problem loans represent all
material credits for which management has doubts as to the ability of the
borrowers to comply with the loan repayment terms. Of these loans,
management believes it is probable that loans totaling $25.9 million will
not be collected as scheduled and therefore are considered impaired.
Management also expects that the resolution of these problem credits as well
as other performing loans will not materially impact future operating
results, liquidity or capital resources.
LIQUIDITY:
The maintenance of an adequate liquidity position and the constant
monitoring of rate sensitivity are principle components of BancGroup's
asset/liability management strategy. BancGroup's governing policy provides
for daily and longer term monitoring of both sources and uses of funds to
properly maintain the cash position. The policy also establishes the
criteria for monitoring the short and long term impact of interest rate
fluctuations on these funds. To assist in funding loan growth, BancGroup has
credit facilities at the Federal Home Loan Bank (FHLB). FHLB of Atlanta has
established credit availability in an amount up to $2.3 billion with only
$1.1 billion outstanding at June 30, 1998. This source of credit reduces
BancGroup's dependency on deposits as a source of liquidity resulting in a
loan to deposit ratio of 97% at June 30, 1998 and 96% at December 31, 1997.
BancGroup has a brokered Certificate of Deposit (CD) program in conjunction
with Merrill Lynch, Dean Witter and Oppenheimer Capital to offer CD's in
increments of $1,000 to $99,000 to out of market customers at competitive
rates ranging from 5.30% to 5.85% maturing in 6 to 24 month periods. At June
30, 1998, $138 million is outstanding under this program. BancGroup also has
a brokered money market program with Merrill Lynch. At June 30, 1998, $124
million is outstanding under this program at an average rate of 5.5%. Funds
are transferred daily to meet short-term funding fluctuations. As discussed
previously, BancGroup has received funds under reverse repurchase
arrangements with Morgan Stanley, Salomon Brothers and First Boston. At June
30, 1998, there was $251 million in outstanding debt under this agreement
which is collateralized by mortgage-backed securities.
CAPITAL RESOURCES:
Management continuously monitors the capital adequacy and potential for
future growth. The primary measurement for these evaluations for a bank
holding company is its tier one leverage ratio. Tier one capital for
BancGroup at June 30, 1998 consists of $597 million of equity and $70
million in trust preferred securities less $79 million of intangibles
providing a 7.41% leverage ratio at June 30, 1998. The ratio of
shareholders' equity to total assets at June 30, 1998 was 6.86% as compared
to 7.32% at December 31, 1997. This decline is primarily attributable to the
increase in assets as a result of mortgage loans held for sale and
investment activities previously discussed. Management believes that capital
levels are sufficient to support future internally generated growth and fund
the quarterly dividend rates which are currently $0.17 per share prior to
the 2-for-1 stock split as discussed in Note E.
BancGroup also has access to equity capital markets through both public
and private issuances. Management considers these sources and related return
in addition to internally generated capital in evaluating future expansion,
merger or acquisition opportunities.
YEAR 2000 COMPLIANCE:
The Federal Reserve has established a Year 2000 Supervision Program and
published guidelines for implementing procedures to bring computer software
programs and processing systems into Year 2000 compliance. BancGroup has
established a full time Year 2000 task force to address all Year 2000
compliance issues as well as enhancements to computer and communications
systems resulting from upgrades initiated in response to Year 2000 issues.
BancGroup is in the process of implementing plans in accordance with
regulatory guidelines to bring all business critical computer systems into
Year 2000 compliant status. These guidelines include requirements regarding
project plans, testing plans and contingency plans. BancGroup is in
conformity with the current requirements regarding completion and
implementation of these plans. All business critical systems have been
scheduled for implementation or upgrade and testing procedures established
for completion by year end 1998.
Year 2000 expenses of $3 million were incurred through the six months
ended June 30, 1998. These expenses included a one-time pretax charge of
approximately $2 million in the first quarter for the write off of the
remaining book value of branch automation equipment that is to be replaced
with year 2000 compliant software. The remaining $1 million is one time third
party
11
<PAGE> 15
incremental costs related to the completion of assessment of the Company's
systems and upgrading internal systems to Year 2000 compliance. BancGroup
anticipates approximately $2 million of additional expense throughout the
remainder of 1998. In addition to these expenses, BancGroup plans to
purchase $9 million in replacement equipment and software over the remainder
of the year which will be depreciated over a period of 3 to 5 years.
The above reflects management's current assessment and estimates. Various
factors could cause actual results to differ materially from those
contemplated by such assessments, estimates and forward looking statements.
Some of these factors may be beyond the control of BancGroup, including but
not limited to, vendor representations, technological advancements, economic
factors and competitive considerations. Management's evaluation of Year 2000
compliance and technological upgrades is an ongoing process involving
continual evaluation. Unanticipated problems could develop and alternative
solutions may be available that could cause current solutions to be more
difficult or costly than currently anticipated.
COMPARISON OF THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1998 AND JUNE
30, 1997:
SUMMARY:
BancGroup is involved in two primary lines of business: commercial
banking and mortgage banking, through its wholly owned subsidiaries Colonial
Bank and Colonial Mortgage Company ("CMC"). The following schedule of
BancGroup's results of operations reflects the related impact of each line
of business to the earnings of the company.
LINE OF BUSINESS RESULTS
(In thousands)
<TABLE>
<CAPTION>
Colonial Colonial Consolidated
QUARTER ENDED JUNE 30,1998 Bank Mortgage Other(1) BancGroup
-------- -------- -------- ------------
<S> <C> <C> <C> <C>
Net interest income $76,566 $ 3,360 $(1,701) $78,225
Provision for possible loan losses (3,793) -- -- (3,793)
Noninterest income 14,395 16,782 (17) 31,160
Amortization and depreciation 6,030 7,042 (48) 13,024
Noninterest expense 46,289 6,745 747 53,781
------- ------- ------- -------
Pretax income (loss) 34,849 6,355 (2,417) 38,787
Income taxes (12,907) (2,394) 616 (14,685)
------- ------- ------- -------
Net Income (loss) 21,942 3,961 (1,801) 24,102
Acquisition and restructuring costs, net of taxes 989 -- 17 1,006
Year 2000 expense, net of taxes 156 258 -- 414
------- ------- ------- -------
Income excluding acquisition and restructuring
costs and Year 2000 expense $23,087 $ 4,219 $(1,784) $25,522
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Colonial Colonial Consolidated
QUARTER ENDED JUNE 30,1997* Bank Mortgage Other(1) BancGroup
-------- -------- -------- ------------
<S> <C> <C> <C> <C>
Net interest income $68,165 $ 1,999 $(1,583) $68,581
Provision for possible loan losses (3,991) -- -- (3,991)
Noninterest income 10,574 11,765 (27) 22,312
Amortization and depreciation 3,942 4,180 64 8,186
Noninterest expense 40,779 4,149 1,761 46,689
------- ------- ------- -------
Pretax income (loss) 30,027 5,435 (3,435) 32,027
Income taxes (10,818) (2,026) 914 (11,930)
------- ------- ------- -------
Net Income (loss) 19,209 3,409 (2,521) 20,097
Acquisition and restructuring costs, net of taxes 1,246 -- 255 1,501
Year 2000 expense, net of taxes -- -- -- --
------- ------- ------- -------
Income excluding acquisition and restructuring
costs and Year 2000 expense $20,455 $ 3,409 $(2,266) $21,598
======= ======= ======= =======
</TABLE>
12
<PAGE> 16
LINE OF BUSINESS RESULTS (CONTINUED)
(In thousands)
<TABLE>
<CAPTION>
Colonial Colonial Consolidated
SIX MONTHS ENDED JUNE 30,1998 Bank Mortgage Other(1) BancGroup
-------- -------- --------- ------------
<S> <C> <C> <C> <C>
Net interest income $150,997 $ 5,569 $(3,345) $153,221
Provision for possible loan losses (7,543) -- -- (7,543)
Noninterest income 27,723 29,727 (30) 57,420
Amortization and depreciation 11,849 12,153 (112) 23,890
Noninterest expense 97,189 12,408 1,363 110,960
-------- ------ ------- --------
Pretax income (loss) 62,139 10,735 (4,626) 68,248
Income taxes (23,020) (4,044) 1,227 (25,837)
-------- ------ ------- --------
Net Income (loss) 39,119 6,691 (3,399) 42,411
Acquisition and restructuring costs, net of taxes 5,135 -- 31 5,166
Year 2000 expense, net of taxes 1,380 481 -- 1,861
-------- ------- ------- --------
Income excluding acquisition and restructuring
costs and Year 2000 expense $ 45,634 $ 7,172 $(3,368) $49,438
======== ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
Colonial Colonial Consolidated
SIX MONTHS ENDED JUNE 30,1997* Bank Mortgage Other BancGroup
-------- -------- ------- ------------
<S> <C> <C> <C> <C>
Net interest income $133,434 $ 2,775 $(2,594) $133,615
Provision for possible loan losses (7,288) -- -- (7,288)
Noninterest income 21,422 21,131 (29) 42,524
Amortization and depreciation 7,587 8,045 134 15,766
Noninterest expense 79,458 8,149 2,790 90,397
-------- ------- ------- --------
Pretax income (loss) 60,523 7,712 (5,547) 62,688
Income taxes (21,638) (2,875) 1,505 (23,008)
-------- ------- ------- --------
Net Income (loss) 38,885 4,837 (4,042) 39,680
Acquisition and restructuring costs, net of taxes 1,826 -- 281 2,107
Year 2000 expense, net of taxes -- -- -- --
-------- ------- ------- --------
Income excluding acquisition and restructuring
costs and Year 2000 expense $ 40,711 $ 4,837 $(3,761) $ 41,787
======== ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
SELECTED RATIOS: June 30, 1998 June 30, 1997* June 30, 1998 June 30, 1997*
--------------------------------- ------------------------------
<S> <C> <C> <C> <C>
Income excluding acquisition and restructuring
costs and Year 2000 expenses to:
Average assets 1.24% 1.25% 1.23% 1.27%
Average shareholders' equity 17.16% 17.15% 17.38% 17.47%
Efficiency ratio (excluding acquisition and
restructuring costs and Year 2000 expenses) 58.60% 58.31% 58.86% 57.91%
</TABLE>
* Restated financial results above reflect the business combinations with
United American Holding Corporation, South Florida Banking Corp., First
Central Bank and Commercial Bank of Nevada. These mergers were accounted
for as poolings of interests and the financial results have been restated
accordingly.
(1) Represents holding company financing costs and certain unallocable
expenses.
13
<PAGE> 17
AVERAGE VOLUME AND RATES
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-----------------------------------
1998 1997*
-------------------------------------- ------------------------------------
AVERAGE AVERAGE
VOLUME INTEREST RATE VOLUME INTEREST RATE
---------- -------- ------ ---------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Loans, net $5,826,532 $ 260,712 9.00% $5,033,722 $ 226,620 9.06%
Mortgage loans held for sale 327,638 12,047 7.35% 127,862 5,075 7.94%
Investment securities and securities
available for sale and other
interest-earning assets 1,093,029 35,302 6.51% 1,032,698 33,119 6.47%
---------- --------- ---------- ---------
Total interest-earning assets(l) 7,247,199 $ 308,061 8.54% 6,194,282 $ 264,814 8.60%
--------- ---------
Nonearning assets 776,295 549,119
---------- ----------
Total assets $8,023,494 $6,743,401
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Interest-bearing deposits $4,923,586 $ 116,065 4.75% $4,462,935 $ 105,751 4.78%
Short-term borrowings 791,878 22,038 5.56% 707,143 19,390 5.50%
Long-term debt 496,765 15,338 6.15% 126,554 4,647 7.38%
---------- --------- ---------- ---------
Total interest-bearing liabilities 6,212,229 $ 153,441 4.97% 5,296,632 $ 129,788 4.94%
--------- ---------
Noninterest-bearing demand
deposits 1,106,484 870,231
Other liabilities 123,850 85,216
---------- ----------
Total liabilities 7,442,563 6,252,079
Shareholders' equity 580,931 491,322
---------- ----------
Total liabilities and shareholders'
equity $8,023,494 $6,743,401
========== ==========
Rate differential 3.57% 3.66%
Net yield on interest-earning assets $ 154,620 4.28% $ 135,026 4.37%
========= =========
</TABLE>
* Restated financial results above reflect the business combinations with
United American Holding Corporation, South Florida Banking Corp., First
Central Bank and Commercial Bank of Nevada. These mergers were accounted
for as poolings of interests and the financial results have been
restated accordingly.
(1) Interest earned and average rates on obligations of states and
political subdivisions are reflected on a tax equivalent basis. Tax
equivalent interest earned is: actual interest earned times 145%. The
taxable equivalent adjustment has given effect to the disallowance of
interest expense deductions, for federal income tax purposes, related to
certain tax-free assets. Dividends earned and average rates for
preferred stocks are reflected on a tax equivalent basis. Tax equivalent
dividends are: actual dividends times 137.7%.
14
<PAGE> 18
AVERAGE VOLUME AND RATES
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
-----------------------------
1998 1997*
-------------------------------------- ------------------------------------
AVERAGE AVERAGE
VOLUME INTEREST RATE VOLUME INTEREST RATE
---------- -------- ------ ---------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Loans, net $5,893,667 $131,614 8.96% $5,105,083 $115,899 9.11%
Mortgage loans held for sale 399,485 7,373 7.40% 140,702 2,910 8.30%
Investment securities and securities
available for sale and other
interest-earning assets 1,199,710 19,477 6.51% 1,023,069 16,589 6.50%
---------- -------- ---------- --------
Total interest-earning assets(l) 7,492,862 $158,464 8.48% 6,268,854 $135,398 8.66%
-------- --------
Nonearning assets 813,923 569,016
---------- ----------
Total assets $8,306,785 $6,837,870
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Interest-bearing deposits $4,942,610 $ 58,406 4.74% $4,524,948 $ 54,120 4.80%
Short-term borrowings 878,357 12,171 5.51% 676,805 9,388 5.50%
Long-term debt 600,648 9,185 6.08% 145,632 2,691 7.39%
---------- -------- ---------- --------
Total interest-bearing liabilities 6,421,615 $ 79,762 4.97% 5,347,385 $ 66,199 4.96%
-------- --------
Noninterest-bearing demand
deposits 1,160,073 910,060
Other liabilities 136,012 84,645
---------- ----------
Total liabilities 7,717,700 6,342,090
Shareholders' equity 589,085 495,780
---------- ----------
Total liabilities and shareholders'
equity $8,306,785 $6,837,870
========== ==========
Rate differential 3.51% 3.70%
Net yield on interest-earning assets $ 78,702 4.22% $ 69,199 4.44%
======== ========
</TABLE>
* Restated financial results above reflect the business combinations with
United American Holding Corporation, South Florida Banking Corp., First
Central Bank and Commercial Bank of Nevada. These mergers were accounted
for as poolings of interests and the financial results have been
restated accordingly.
(1) Interest earned and average rates on obligations of states and
political subdivisions are reflected on a tax equivalent basis. Tax
equivalent interest earned is: actual interest earned times 145%. The
taxable equivalent adjustment has given effect to the disallowance of
interest expense deductions, for federal income tax purposes, related to
certain tax-free assets. Dividends earned and average rates for
preferred stocks are reflected on a tax equivalent basis. Tax equivalent
dividends are: actual dividends times 137.7%.
15
<PAGE> 19
ANALYSIS OF INTEREST INCREASES (DECREASES)
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1998 CHANGE FROM 1997*
--------------------------------------------------
ATTRIBUTED TO (1)
-----------------
TOTAL VOLUME YIELD/RATE
------ -------- ----------
<S> <C> <C> <C>
INTEREST INCOME:
Total Loans, Net $34,092 $35,214 ($1,122)
Mortgage loans held for sale 6,972 7,776 (804)
Investment securities and securities available
for sale and other interest-earning assets 2,183 1,913 270
------- ------- -------
Total interest income(2) 43,247 44,903 (1,656)
------- ------- -------
INTEREST EXPENSE:
Interest bearing deposits 10,314 9,146 1,168
Short-term borrowings 2,648 1,936 712
Long-term debt 10,691 11,353 (662)
------- ------- -------
Total interest expense 23,653 22,435 1,218
------- ------- -------
NET INTEREST INCOME $19,594 $22,468 ($2,874)
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1998 CHANGE FROM 1997*
----------------------------------------------------
ATTRIBUTED TO (1)
-------------------
TOTAL VOLUME YIELD/RATE
------- ------- ----------
<S> <C> <C> <C>
INTEREST INCOME:
Total Loans, Net $15,715 $18,121 ($2,406)
Mortgage loans held for sale 4,463 5,417 (954)
Investment securities and securities available
for sale and other interest-earning assets 2,888 2,899 (11)
------- ------- -------
Total interest income(2) 23,066 26,437 (3,371)
------- ------- -------
INTEREST EXPENSE:
Interest bearing deposits 4,286 4,111 175
Short-term borrowings 2,783 2,275 508
Long-term debt 6,494 6,899 (405)
------- ------- -------
Total interest expense 13,563 13,285 278
------- ------- -------
Net interest income $ 9,503 $13,152 ($3,649)
======= ======= =======
</TABLE>
* Restated financial results above reflect the business combinations with
United American Holding Corporation, South Florida Banking Corp., First
Central Bank and Commercial Bank of Nevada. These mergers were accounted
for as poolings of interests and the financial results have been
restated accordingly.
(1) Increases (decreases) are attributable to volume changes and rate
changes on the following basis: Volume Change = change in volume times
old rate. Rate Change = change in rate times old volume. Changes not
solely attributable to a change in rate or volume are allocated
proportionately relative to the absolute value of the total change of
rate and volume.
(2) Interest earned on obligations of state and political subdivisions is
reflected on a tax equivalent basis. Tax equivalent interest earned is:
actual interest earned times 145%. The taxable equivalent adjustment has
given effect to the disallowance of interest, for federal income tax
purposes, related to certain tax-free assets. Dividends earned on
preferred stock are reflected on a tax equivalent basis. Tax equivalent
dividends earned are: actual dividends times 137.7%. Tax equivalent
average rate is tax equivalent interest or dividends earned divided by
average volume.
16
<PAGE> 20
NET INTEREST INCOME:
Net interest income on a tax equivalent basis increased $9.5 million to
$78.7 million for the quarter ended June 30, 1998 from $69.2 million for the
quarter ended June 30, 1997. The net yield on interest earning assets
decreased from 4.44% to 4.22% for the three months ended June 30, 1997 and
1998, respectively. For the first six months of 1998, net interest income on
a tax equivalent basis increased $19.6 million to $154.6 million as compared
to $135.0 million for the same period in 1997. The net yield on interest
earning assets decreased from 4.37% to 4.28% for the six months ended June
30, 1997 compared to the same period in 1998, while the rate differential
decreased from 3.66% to 3.57% for the six months ended June 30, 1997 compared
to 1998. As previously discussed, BancGroup has acquired mortgage banker
securities under reverse repurchase agreements in order to more effectively
utilize its established capital base. These leverage transactions resulted in
additional income of approximately $500,000 while decreasing net interest
margins by approximately 11 basis points to 4.22% and 6 basis points to 4.28%
for the three and six months ended June 30, 1998, respectively. Colonial Bank
has improved its cost of funds through its acquisitions in Florida and
maintenance of realistic pricing standards. BancGroup's net interest margin
prior to Florida acquisitions, which began in July 1996, was 4.04% compared
to its peers* 4.52%. By the second quarter of 1998, net interest margin has
improved to 4.28% compared to its peers first quarter 1998, 4.34%.
As reflected on the previous tables, the increase in net interest income
for the three and six months was primarily attributable to loan growth which
was partially offset by lower loan rates. During the first quarter of 1997
the prime rate increased to 8.50% where it has remained through the second
quarter of 1998.
LOAN LOSS PROVISION:
The provision for loan losses for the first six months of 1998 was
$7,543,000 compared to $7,288,000 for the same period in 1997. Asset quality
remains good. The current allowance for loan losses provides a 218% coverage
of nonperforming loans compared to 245% at December 31, 1997 and 226% at
June 30, 1997. See management's discussion on loan quality and the allowance
for possible loan losses presented in the Financial Condition section of
this report.
NONINTEREST INCOME:
Noninterest income increased $14.9 million for the six months ended June
30, 1998 compared to the same period in 1997. This increase is primarily due
to mortgage servicing and origination fees of $2.8 million, fees on deposit
accounts of $2.8 million, gains on sales of loans of $5.2 million, gains on
securities of $1.0 million and $.8 million in income related to bank owned
life insurance.
The increase in noninterest income for the three months ended June 30,
1998 compared to the three months ended June 30, 1997 of $8.9 million is
primarily due to increases in mortgage servicing fees of $1.3 million, fees
on deposit accounts of $1.6 million, gains on sales of loans of $3.3
million, gains on securities of $.9 million and $.6 million in income
related to bank owned life insurance.
Mortgage servicing fees increased due to an increase in the servicing
portfolio of $2.4 billion to $14.7 billion at June 30, 1998 from $12.3
billion at June 30, 1997. Gain on sales increased due to additional loan
volume resulting from increased refinancing activity.
Colonial Mortgage provides additional sources of non-interest income to
BancGroup through fees from its servicing portfolio as well as loan
originations from its 4 divisional offices. Colonial Mortgage purchases,
originates and services conventional, government, and jumbo mortgage
products in 44 states and the District of Columbia. Colonial Mortgage had
non-interest income of $29.7 million for the six months ended June 30, 1998,
compared to $21.1 million for the six months ended June 30, 1997.
BancGroup is continuing to expand its services through increased efforts
in private banking and additional products including asset management
services, trust services and investment sales products and services. In
addition, BancGroup has established an international banking unit through its
Florida market to provide and service the needs of customers involved in
international activities. Commissions on sales of securities and annuities
were $1.0 million for the six months ended June 30, 1998 compared to $402,000
for the same period last year.
NONINTEREST EXPENSES:
BancGroup's net overhead expense (total noninterest expense, excluding
acquisition and restructuring costs and Year 2000 expenses, less noninterest
income, excluding security gains) was $67.8 million and $61.0 million for
the six months ended June 30, 1998 and 1997, respectively. Noninterest
expenses, excluding acquisition and restructuring costs and Year 2000
expenses, increased $20.7 million for the six months ended June 30, 1998,
compared to the same period in 1997. The majority of this increase is due to
the addition of acquisitions accounted for as purchases, normal salary
increases and an increase in amortization of mortgage servicing rights.
Noninterest expenses increased $11.9 million for the three months ended
June 30, 1998 compared to the same period in 1997. This increase primarily
relates to a $2.9 million increase in the amortization of mortgage servicing
rights, $570,000 in additional amortization of intangibles and a $6.7 million
increase in salaries and benefits. Lower long-term interest rates have caused
higher prepayments of mortgages serviced for others, resulting in additional
amortization of the mortgage servicing rights asset. This additional
amortization in excess of scheduled amortization amounted to $1.5 million in
the second quarter. The increase in the amortization of intangibles is
attributable to goodwill recognized as a result of purchase method business
combinations. Salary and benefit increases related to increased staffing
levels as a result of activities related to business combinations and normal
wage increases.
----------
* Southeast Regional as provided by Keefe, Bruyette and Woods, Inc.
17
<PAGE> 21
BancGroup's efficiency ratio, excluding acquisition and restructuring
costs and Year 2000 expense, was 58.60% and 58.31% for the six months ended
June 30, 1998 and June 30, 1997, respectively. The Company should continue
to improve efficiencies with the conversion of the newly acquired banks.
Conversions will allow the consolidation of back-shop operational areas into
BancGroup's existing loan and deposit operations, accounting and data
processing departments. These consolidation efforts should result in
continued improvement of the efficiency ratio through the reduction of
expenses. Refer to further discussion of conversion efforts under the
Acquisition and Restructuring Costs section which follows.
ACQUISITION AND RESTRUCTURING COSTS:
One time acquisition and restructuring costs of $7.6 million were
incurred for the six months ended June 30, 1998, with $6.1 million and $1.5
million recorded in the first and second quarter, respectively. These costs
represent one-time costs in connection with the acquisition of various
banking institutions and the integration of those institutions into
BancGroup's systems as well as the restructuring of BancGroup's regional
banks in Florida. The primary components of these one-time costs are as
follows:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
Accounting and legal services $ 675
Asset write-offs 2,373
Contract buy-outs 1,002
Severance costs 2,299
Stock option related costs 69
Other miscellaneous 1,179
------
Total $7,597
======
</TABLE>
These are one-time costs with respect to each individual transaction, but
represent ongoing expenses so long as BancGroup continues its acquisition
program. BancGroup anticipates incurring approximately $1.5 million and
$3.3 million in one-time costs associated with acquisitions scheduled to
close in the third and fourth quarters of 1998, respectively. These
one-time costs should be more than offset by revenue growth from the
acquired banks and cost savings from consolidation expected to be realized
in 1999 and 2000.
As noted in previous discussions, BancGroup's Year 2000 testing will be the
primary focus of technology efforts for the remainder of 1998. As a result,
BancGroup is planning to convert two acquired banks during the second half
of 1998 and to convert four acquired banks and two currently pending
acquisitions to BancGroup's computer systems during the first four months of
1999. BancGroup expects to incur additional third party costs of
approximately $1.5 million in order to accomplish six conversions in the
first four months of 1999. BancGroup expects to realize cost savings of
approximately $3.1 million during 1999 from the eight scheduled conversions.
Three of BanGroup's pending acquisitions have computer systems that are on
track to become Year 2000 complaint in accordance with regulatory guidance
promulgated by the FFEIC and thus the Federal Reserve. Colonial may continue
to operate these entities on their current computer systems as the
incremental cost of leaving them on their computer systems is not
substantial. Although these entities may not be converted until the Year
2000, Colonial expects to achieve cost savings of approximately $1 million
during 1999 from these banks. Colonial anticipates realizing additional cost
savings of approximately $1.5 million from conversions of these banks during
the year 2000.
The conversion timetable is dependent upon numerous factors, including but
not limited to, additional bank acquisitions as well as changes in the Year
2000 compliance regulations promulgated by the Federal Reserve.
YEAR 2000 EXPENSES:
Year 2000 expenses of $3.0 million were incurred during the six months
ended June 30, 1998. For additional information refer to the Year 2000
Compliance section presented in the Financial Condition section of this
report.
PROVISION FOR INCOME TAXES:
BancGroup's provision for income taxes is based on an approximately 37.9%
and 36.7%, respectively, estimated annual effective tax rate for the years
1998 and 1997, respectively. The provision for income taxes for the six
months ended June 30, 1998 and 1997 was $25,837, and $23,008, respectively.
18
<PAGE> 22
PART II
OTHER INFORMATION
ITEM 1: Legal Proceedings - See Note C - COMMITMENTS AND CONTINGENCIES
AT PART 1 ITEM 1
ITEM 2: Changes in Securities - N/A
ITEM 3: Defaults Upon Senior Securities - N/A
ITEM 4: Submission of Matters to a Vote of Security Holders
ITEM 5: Other Events - N/A
ITEM 6: Form 8-K - A) Report on Form 8-K was filed on June 2, 1998
disclosing the amended and restated financial statements for
December 31, 1997. B) Report on Form 8-K filed on July 17, 1998
disclosing the declaration of a two for one stock split effected
in the form of a 100% stock dividend.
Exhibit 11 - Computation of Earnings Per Share
Exhibit 27 - Financial Data Schedule (for SEC use only)
19
<PAGE> 23
SIGNATURE
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.
Date: August 3, 1998 By: /S/W. Flake Oakley, IV
------------------------------
W. Flake Oakley, IV
Its Chief Financial Officer
20
<PAGE> 1
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
June 30, 1998
(Unaudited)
(In thousands, except per share amounts)
EXHIBIT 11
<TABLE>
<CAPTION>
Basic Diluted
---------------------------------------------
Q-T-D Y-T-D Q-T-D Y-T-D
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income $24,102 $42,411 $24,102 $42,411
Interest expense on convertible subordinated
debentures 97 198
Tax effect @ 37.90% for the quarter and year to date (37) (75)
------- ------- ------- -------
Net income $24,102 $42,411 24,162 42,534
======= ======= ======= =======
Average shares outstanding 49,059 48,841 49,059 48,841
Effect of stock options 859 922
Convertible subordinated debentures 368 383
------- -------
Diluted average shares outstanding 50,286 50,146
======= =======
Earnings per share:
Net Income $ 0.49 $ 0.87 $ 0.48 $ 0.85
======= ======= ======= =======
</TABLE>
21
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF THE COLONIAL BANCGROUP, INC. FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 344,388
<INT-BEARING-DEPOSITS> 20,630
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,117,946
<INVESTMENTS-CARRYING> 235,297
<INVESTMENTS-MARKET> 237,448
<LOANS> 6,027,489
<ALLOWANCE> 72,782
<TOTAL-ASSETS> 8,772,533
<DEPOSITS> 6,193,818
<SHORT-TERM> 1,093,482
<LIABILITIES-OTHER> 152,249
<LONG-TERM> 731,213
0
0
<COMMON> 122,790
<OTHER-SE> 478,981
<TOTAL-LIABILITIES-AND-EQUITY> 8,772,533
<INTEREST-LOAN> 272,302
<INTEREST-INVEST> 32,903
<INTEREST-OTHER> 1,457
<INTEREST-TOTAL> 306,662
<INTEREST-DEPOSIT> 116,065
<INTEREST-EXPENSE> 153,441
<INTEREST-INCOME-NET> 153,221
<LOAN-LOSSES> 7,543
<SECURITIES-GAINS> 991
<EXPENSE-OTHER> 134,850
<INCOME-PRETAX> 68,248
<INCOME-PRE-EXTRAORDINARY> 68,248
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 42,411
<EPS-PRIMARY> .87
<EPS-DILUTED> .85
<YIELD-ACTUAL> 4.28
<LOANS-NON> 31,921
<LOANS-PAST> 7,146
<LOANS-TROUBLED> 1,395
<LOANS-PROBLEM> 180,600
<ALLOWANCE-OPEN> 68,595
<CHARGE-OFFS> 7,143
<RECOVERIES> 2,691
<ALLOWANCE-CLOSE> 72,782
<ALLOWANCE-DOMESTIC> 72,782
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,236
</TABLE>
