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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE #0-07945
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THE COLONIAL BANCGROUP, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 63-0661573
(State of Incorporation) (IRS Employer Identification No.)
ONE COMMERCE STREET
POST OFFICE BOX 1108
MONTGOMERY, AL 36101 (334) 240-5000
(Address of principal executive offices) (Telephone No.)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
COMMON STOCK, PAR VALUE $2.50 REGISTERED ON THE NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
7 1/2% CONVERTIBLE SUBORDINATED DEBENTURES, DUE 2011
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to the
Form 10-K. [ ]
The aggregate market value of the voting stock of the registrant held by
non-affiliates as of February 27, 1998 based on the closing price of $34.00 per
share for Common Stock was $1,334,377,090. (For purposes of calculating this
amount, all directors, officers and principal shareholders of the registrant are
treated as affiliates).
Shares of Common Stock outstanding at February 27, 1998 were 48,092,093.
DOCUMENTS INCORPORATED BY REFERENCE
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DOCUMENT PART OF FORM 10-K
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Portions of Annual Report to Shareholders Part I,
for fiscal year ended December 31, 1997 Part II,
as specifically referred to herein. and Part IV
Portions of Definitive Proxy Statement Part III
for 1998 Annual Meeting as specifically
referred to herein.
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PART I
ITEM 1. BUSINESS
GENERAL
The Registrant, The Colonial BancGroup, Inc., is hereinafter referred to as
"BancGroup".
BancGroup, a Delaware corporation, was organized in 1974 and is a bank
holding company under the Bank Holding Act of 1956, as amended (the "BHCA").
BancGroup was originally organized as Southland Bancorporation, and its name was
changed in 1981. In 1997, pursuant to the Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994, BancGroup consolidated its banking
subsidiaries located in Georgia, Florida and Tennessee into its banking
subsidiary in Alabama, Colonial Bank ("Colonial Bank").
Colonial Bank has 125 branches in Alabama, 52 branches in Florida, 14
branches in Georgia and 5 branches in Tennessee. Colonial Bank conducts a
general commercial banking business in its respective service areas and offers
banking services such as the receipt of demand, savings and time deposits credit
card services, safe deposit box services, the purchase and sale of investment
securities and the extension of credit through personal, commercial and mortgage
loans. Colonial Bank is active as a correspondent bank for unaffiliated banks.
Colonial Mortgage Company ("CMC") is a subsidiary of Colonial Bank and is a
mortgage banking company. CMC operates retail offices in Alabama and 4 regional
offices covering 44 states and the District of Columbia which service
approximately $12.9 billion in residential loans. CMC's retail operation offers
conventional, government and jumbo loan products directly to borrowers. CMC's
wholesale operation offers somewhat limited products comprised of conventional
and jumbo loan products to various mortgage brokers. CMC offers a wholesale
government program from its home office in Montgomery, Alabama. CMC has
relationships with all housing agencies such as VA, the Department of Housing
and Urban Development, FHA, FHLMC and FNMA. CMC underwrites, closes and sells
loans according to the guidelines required by these agencies.
At December 31, 1997, BancGroup's banking subsidiary accounted for
approximately 98% of BancGroup's consolidated assets. The principal activity of
BancGroup is to supervise and coordinate the business of its subsidiaries and to
provide them with capital and services. BancGroup derives substantially all of
its income from dividends received from Colonial Bank. Various statutory
provisions and regulatory policies limit the amount of dividends Colonial Bank
may pay without regulatory approval. In addition, federal statutes restrict the
ability of Colonial Bank to make loans to BancGroup.
BancGroup's affiliate bank encounters intense competition in its commercial
banking business, generally from other banks located in its respective
metropolitan and service areas. Colonial Bank competes for interest bearing
funds with other banks and with many issuers of commercial paper and other
securities which are not banks. In the case of larger customers, competition
exists with banks in other metropolitan areas of the United States, many of
which are larger in terms of capital resources and personnel. In the conduct of
certain aspects of its commercial banking business, Colonial Bank competes with
savings and loan associations, credit unions, factors, insurance companies and
other financial institutions.
BancGroup has three direct nonbanking subsidiaries. The Colonial BancGroup
Building Corporation was established primarily to own and lease the buildings
and land used by the banking affiliate of BancGroup. Dadeland Software Services,
Inc. was acquired simultaneously with the Dadeland BancShares, Inc. merger on
September 15, 1997 and owns a 20% interest in a joint venture which provides
data processing, computer software, and related consulting services to banks and
other financial institutions. Colonial Capital II, a Delaware business trust,
issued $70 million in trust preferred securities, which are guaranteed by
BancGroup, in 1997.
BancGroup employs approximately 2,955 persons. BancGroup's principal
offices are located at and its mailing address is: One Commerce Street, Post
Office Box 1108, Montgomery, Alabama 36101. Its telephone number is (334)
240-5000.
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LENDING ACTIVITIES
BancGroup's commercial banking loan portfolio is comprised primarily of
commercial real estate loans (27%) and residential real estate loans (42%).
BancGroup's growth in loans over the past several years has been concentrated in
commercial and residential real estate loans. The lending activities of Colonial
Bank are dependent upon the demands within the local markets of its branches.
Based on this demand, loans collateralized by commercial and residential real
estate have been the fastest growing component of Colonial Bank's loan
portfolio.
BancGroup, through the branches and offices of Colonial Bank, makes loans
for a range of business and personal uses in response to local demands for
credit. Loans are concentrated in Alabama, Tennessee, Georgia and Florida and
are dependent upon economic conditions in those states. The Alabama economy
experiences a generally slow but steady rate of growth, while Georgia and
Florida are experiencing higher rates of growth. The following broad categories
of loans have varying risks and underwriting standards.
- - Commercial Real Estate. Loans classified as commercial real estate loans are
loans which are collateralized by real estate and substantially dependent upon
cash flow from income-producing improvements attached to the real estate. For
BancGroup, these primarily consist of apartments, hotels, office buildings,
shopping centers, amusement/recreational facilities, one to four family
residential housing developments, and health service facilities.
Loans within this category are underwritten based on projected cash flows and
loan-to-appraised-value ratios of 80% or less. The risks associated with
commercial real estate loans primarily relate to real estate values in local
market areas, the equity investments of borrowers, and the borrowers'
experience and expertise. BancGroup has diversified its portfolio of
commercial real estate loans with less than 10% of its total loan portfolio
concentrated in any of the above-mentioned income producing activities.
- - Real Estate Construction. Construction loans include loans to finance single
family and multi-family residential as well as nonresidential real estate.
Loan values for these loans are from 80% to 85% of completed appraised values.
The principal risks associated with these loans are related to the borrowers'
ability to complete the project and local market demand, the sales market,
presales or preleasing, and permanent loan commitments. BancGroup evaluates
presale requirements, preleasing rates, permanent loan take-out commitments,
as well as other factors in underwriting construction loans.
- - Real Estate Mortgages. These loans consist of loans made to finance one to
four family residences and home equity loans on residences. BancGroup may loan
up to 95% of appraised value on these loans without other collateral or
security. The principal risks associated with one to four family residential
loans are the borrowers' debt coverage ratios and real estate values.
- - Commercial, Financial, and Agricultural. Loans classified as commercial,
financial, and agricultural consist of secured and unsecured credit lines and
equipment loans for various industrial, agricultural, commercial, retail, or
service businesses.
The risk associated with loans in this category are generally related to the
earnings capacity and cash flows generated from the individual business
activities of the borrowers. Collateral consists primarily of business
equipment, inventory, and accounts receivables with loan-to-value ratios of
less than 80%. Credit may be extended on an unsecured basis or in excess of
80% of collateral value in circumstances as described in the paragraph below.
- - Installment and Consumer. Installment and consumer loans are loans to
individuals for various purposes. Automobile loans and unsecured loans make up
the majority of these loans. The principal source of repayment is the earning
capacity of the individual borrowers as well as the value of the collateral
for secured loans. Installment and consumer loans are sometimes made on an
unsecured basis or with loan-to-value ratios in excess of 80%.
Collateral values referenced above are monitored by loan officers through
property inspections, reference to broad measures of market values, as well as
current experience with similar properties or collateral. Loans with
loan-to-value ratios in excess of 80% have potentially higher risks which are
offset by other factors
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including the borrower's or guarantors' credit worthiness, the borrower's other
banking relationships, the bank's lending experience with the borrower, and any
other potential sources of repayment.
Colonial bank funds loans primarily with customer deposits approximately
10% of which are considered more rate sensitive or volatile than other deposits.
CERTAIN REGULATORY CONSIDERATIONS
BancGroup is a registered bank holding company subject to supervision and
regulation by the Board of Governors of the Federal Reserve System (the "Federal
Reserve"). As such, it is subject to the BHCA and many of the Federal Reserve's
regulations promulgated thereunder.
Colonial Bank, an Alabama state chartered bank that is a member of the
Federal Reserve System, is subject to supervision and examination by the Federal
Reserve and the Alabama State Banking Department (the "Department"). The
deposits of Colonial Bank are insured by the FDIC to the extent provided by law.
The FDIC assesses deposit insurance premiums the amount of which may, in the
future, depend in part on the condition of Colonial Bank. Moreover, the FDIC may
terminate deposit insurance of Colonial Bank under certain circumstances. Both
the Federal Reserve and the Department have jurisdiction over a number of the
same matters, including lending decisions, branching and mergers.
One limitation under the BHCA and the Federal Reserve's regulations
requires that BancGroup obtain prior approval of the Federal Reserve before
BancGroup acquires, directly or indirectly, more than 5% of any class of voting
securities of another bank. Prior approval also must be obtained before
BancGroup acquires all or substantially all of the assets of another bank, or
before it merges or consolidates with another bank holding company. BancGroup
may not engage in "non-banking" activities unless it demonstrates to the Federal
Reserve's satisfaction that the activity in question is closely related to
banking and a proper incident thereto. Because BancGroup is a registered bank
holding company, persons seeking to acquire 25% or more of any class of its
voting securities must receive the approval of the Federal Reserve. Similarly,
under certain circumstances, persons seeking to acquire between 10% and 25% also
may be required to obtain prior Federal Reserve approval.
In 1989, Congress expressly authorized the acquisition of savings
associations by bank holding companies. BancGroup must obtain the prior approval
of the Federal Reserve (among other agencies) before making such an acquisition,
and must demonstrate that the likely benefits to the public of the proposed
transaction (such as greater convenience, increased competition, or gains in
efficiency) outweigh potential burdens (such as an undue concentration of
resources, decreased or unfair competition, conflicts of interest, or unsound
banking practices).
As a result of enactment in 1991 of the FDIC Improvement Act, banks are
subject to increased reporting requirements and more frequent examinations by
the bank regulatory agencies. The agencies also have the authority to dictate
certain key decisions that formerly were left to management, including
compensation standards, loan underwriting standards, asset growth, and payment
of dividends. Failure to comply with these standards, or failure to maintain
capital above specified levels set by the regulators, could lead to the
imposition of penalties or the forced resignation of management. If a bank
becomes critically undercapitalized, the banking agencies have the authority to
place an institution into receivership or require that the bank be sold to, or
merged with, another financial institution.
In September 1994, Congress enacted the Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994. This legislation, among other things, amended
the BHCA to permit bank holding companies, subject to certain limitations, to
acquire either control or substantial assets of a bank located in states other
than that bank holding company's home state regardless of state law
prohibitions. This legislation became effective on September 29, 1995. In
addition, this legislation also amended the Federal Deposit Insurance Act to
permit, beginning on June 1, 1997 (or earlier where state legislatures provided
express authorization), the merger of insured banks with banks in other states.
The officers and directors of BancGroup and Colonial Bank are subject to
numerous insider transaction restrictions, including limits on the amount and
terms of transactions involving Colonial Bank, on the one
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hand, and its principal stockholders, officers, directors, and affiliates on the
other. There are a number of other laws that govern the relationship between
Colonial Bank and its customers. For example, the Community Reinvestment Act is
designed to encourage lending by banks to persons in low and moderate income
areas. The Home Mortgage Disclosure Act and the Equal Credit Opportunity Act
attempt to minimize lending decisions based on impermissible criteria, such as
race or gender. The Truth-in-Lending Act and the Truth-in-Savings Act require
banks to provide certain disclosure of relevant terms related to loans and
savings accounts, respectively. Anti-tying restrictions (which prohibit, for
instance, conditioning the availability or terms of credit on the purchase of
another banking product) further restrict Colonial Bank's relationships with its
customers.
The bank regulatory agencies have broad enforcement powers over depository
institutions under their jurisdiction, including the power to terminate deposit
insurance, to impose fines and other civil and criminal penalties, and to
appoint a conservator or receiver if any of a number of conditions are met. The
Federal Reserve has broad enforcement powers over bank holding companies,
including the power to impose substantial fines and civil penalties.
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. In compliance with
the guidelines of the Federal Reserve, 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. Currently BancGroup is in the process
of implementing its plans to bring all major computer systems into Year 2000
compliant status by the last quarter of 1998. Testing of all systems and changes
will begin in the last quarter of 1998 and continue through the full year of
1999. The major computer systems involved are:
- Colonial Bank's mainframe based systems: These systems are provided by
third-party vendors of national stature. Upgrades to these systems are in
progress and are intended to bring the systems into Year 2000 compliant
status and provide enhancements to current capabilities. The costs
associated with these upgrades are part of BancGroup's ongoing operating
costs.
- Colonial Mortgage Company's (CMC) servicing and production systems: CMC's
systems are primarily in-house systems and are currently being rewritten
to Year 2000 compliant status. The cost of the rewrites is estimated to be
$1.0 million and is incremental to BancGroup's ongoing operating costs.
This cost is expected to be incurred through September 30, 1998. In
addition, CMC's computer hardware is being upgraded to Year 2000 compliant
status. This upgrade will also provide additional capacity for the
servicing systems as well as an enhanced capability for production. The
additional annual cost of the mainframe upgrade (approximately $240,000)
is expected to be absorbed through growth in the servicing portfolio and
through increased production.
- Branch automation operating systems: Colonial Bank's branch automation
operating systems are being converted to Windows NT from OS/2. This
conversion along with establishment of an intranet and increased capacity
of communication lines is the most cost effective method of bringing the
operating system to Year 2000 compliant status while allowing for more
efficient flow of information to and from the branches and providing the
highest assurance of continuing vendor support for BancGroup's branch
automation solution. The incremental operating cost for these upgrades
(approximately $400,000 annually) is expected to be absorbed through
operational efficiencies and increased revenue. BancGroup will incur a
one-time pretax charge during the first quarter of 1998 of approximately
$2 million to write-off the remaining book value of the current branch
automation equipment that is not Windows NT compatible.
BancGroup incurred $432,000 in costs during 1997 related to assessing the
status of BancGroup's systems and defining its strategy to bring all systems
into Year 2000 compliance. BancGroup expects to incur certain additional
third-party costs totaling approximately $300,000 in 1998 relating to the
completion of the assessment of BancGroup's systems and the definition of its
strategy to bring all systems into Year 2000 compliance. These costs have been
and will continue to be expensed as incurred and are not significant to
BancGroup's on-going operating costs.
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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 on-going 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.
PAYMENT OF DIVIDENDS AND OTHER RESTRICTIONS
BancGroup is a legal entity separate and distinct from its subsidiaries,
including Colonial Bank. There are various legal and regulatory limitations on
the extent to which BancGroup's subsidiaries, including among other things, can
finance, or otherwise supply funds to, BancGroup. Specifically, dividends from
Colonial Bank are the principal source of BancGroup's cash revenues and there
are certain legal restrictions under federal and state law on the payment of
dividends by banks. The relevant regulatory agencies also have authority to
prohibit Colonial Bank from engaging in what, in the opinion of such regulatory
body, constitutes an unsafe or unsound banking practice. The payment of
dividends could, depending upon the financial condition of Colonial Bank, be
deemed to constitute such an unsafe or unsound practice.
In addition, Colonial Bank and its subsidiaries are subject to limitations
under Section 23A of the Federal Reserve Act with respect to extensions of
credit to, investments in, and certain other transactions with, BancGroup and
its other subsidiaries. Furthermore, loans and extensions of credit are also
subject to various collateral requirements.
CAPITAL ADEQUACY
The Federal Reserve has adopted minimum risk-based and leverage capital
guidelines for bank holding companies. The minimum required ratio of total
capital to risk-weighted assets (including certain off-balance-sheet items, such
as standby letters of credit) is 8%, of which 4% must consist of Tier 1 capital.
As of December 31, 1997, BancGroup's total risk-based capital ratio was 11.30%,
including 9.93% of Tier 1 capital. The minimum required leverage capital ratio
(Tier 1 capital to average total assets) is 3% for banking organizations that
meet certain specified criteria, including that they have the highest regulatory
rating. A minimum leverage ratio of an additional 100 to 200 basis points is
required for banking organizations not meeting these criteria. As of December
31, 1997, BancGroup's leverage capital ratio was 7.47%. Failure to meet capital
guidelines can subject a banking organization to a variety of enforcement
remedies, including restrictions on its operations and activities.
As regards depository institutions, federal banking statutes establish five
capital categories ("well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" and "critically
undercapitalized"), and impose significant restrictions on the operations of an
institution that is not at least adequately capitalized. Under certain
circumstances, an institution may be downgraded to a category lower than that
warranted by its capital levels, and subjected to the supervisory restrictions
applicable to institutions in the lower capital category.
An undercapitalized depository institution is subject to restrictions in a
number of areas, including capital distributions, payments of management fees
and expansion. In addition, an undercapitalized depository institution is
required to submit a capital restoration plan. A depository institution's
holding company must guarantee the capital plan up to an amount equal to the
lesser of 5% of the depository institution's assets at the time it becomes
undercapitalized or the amount needed to restore the capital of the institution
to the levels required for the institution to be classified as adequately
capitalized at the time the institution fails to comply with the plan. A
depository institution is treated as if it is significantly undercapitalized if
it fails in any material respect to implement a capital restoration plan.
Significantly undercapitalized depository institutions may be subject to a
number of additional significant requirements and restrictions, including
requirements to sell sufficient voting stock to become adequately
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capitalized, to improve management, to restrict asset growth, to prohibit
acceptance of correspondent bank deposits, to restrict senior executive
compensation and to limit transactions with affiliates. Critically
undercapitalized depository institutions are further subject to restrictions on
paying principal or interest on subordinated debt, making investments,
expanding, acquiring or selling assets, extending credit for highly-leveraged
transactions, paying excessive compensation, amending their charters or bylaws
and making any material changes in accounting methods. In general, a receiver or
conservator must be appointed for a depository institution within 90 days after
the institution is deemed to be critically undercapitalized.
SUPPORT OF SUBSIDIARY BANK
Under Federal Reserve Board policy, BancGroup is expected to act as a
source of financial strength to, and to commit resources to support, Colonial
Bank. This support may be required at times when, absent such Federal Reserve
Board policy, BancGroup might not otherwise be inclined to provide it. In the
event of a bank holding company's bankruptcy, any commitment by the bank holding
company to a federal bank regulatory agency to maintain the capital of a
subsidiary bank will be assumed by the bankruptcy trustee and entitled to a
priority of payment.
FDIC INSURANCE ASSESSMENTS
Colonial Bank is subject to FDIC deposit insurance assessments. The FDIC
applies a risk-based assessment system that places financial institutions in one
of nine risk categories with premium rates, based on capital levels and
supervisory criteria, ranging from 0.00% to 0.27% of deposits. The FDIC has the
authority to raise or lower assessment rates on insured deposits in order to
achieve certain designated reserve ratios in the deposit insurance funds.
It should be noted that supervision, regulation, and examination of
BancGroup and Colonial Bank are intended primarily for the protection of
depositors, not security holders.
ADDITIONAL INFORMATION
Additional information, including statistical information concerning the
business of BancGroup, is set forth in BancGroup's Annual Report to Shareholders
for the year ended December 31, 1997, at pages 22 through 48 under the captions
"Selected Financial Data, Selected Quarterly Data 1997-1996" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations", and
is incorporated herein by reference.
EXECUTIVE OFFICERS AND DIRECTORS
Pursuant to general instruction G, information regarding executive officers
of BancGroup is contained herein at Item 10.
ITEM 2. PROPERTIES
The principal executive offices of BancGroup, Colonial Bank, and Colonial
Mortgage are located in Montgomery, Alabama in the Colonial Financial Center and
are leased from G.C. Associates I, Joint Venture, a partnership owned 50% by
affiliates of BancGroup's principal stockholders. These leased premises comprise
68,142 square feet of office space.
As of December 31, 1997, Colonial Bank owned 140 and leased 56 of their
full-service banking offices. See Notes 7 and 12 of the Consolidated Financial
Statements included in the Annual Report to Shareholders, which is incorporated
herein by reference.
ITEM 3. LEGAL PROCEEDINGS
In the opinion of BancGroup, based on review and consultation with legal
counsel, the outcome of any litigation presently pending is not anticipated to
have a material adverse effect on BancGroup's consolidated financial statements
or results of operations.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS
"Market Price of and Dividends Declared on Common Stock" is contained on
page 71 of the Annual Report to Shareholders for the year ended December 31,
1997, and is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
"Selected Financial Data" and "Selected Quarterly Financial Data 1997-1996"
on pages 22 through 24 of the Annual Report to Shareholders for the year ended
December 31, 1997 are incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 25 through 48 of the Annual Report to Shareholders for the
year ended December 31, 1997 is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 44 through 46 of the Annual Report to Shareholders for the
year ended December 31, 1997 is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements set forth in BancGroup's Annual Report to
Shareholders for 1997 at pages 49 through 70 are incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item as to BancGroup's directors is
contained in BancGroup's proxy statement dated March 13, 1998, under the
captions "Election of Directors" and "Section 16 (a) Beneficial Ownership
Reporting Compliance," and is incorporated herein by reference.
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EXECUTIVE OFFICERS OF THE REGISTRANT
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NAME, AGE AND YEAR BECAME POSITION AND OFFICES HELD WITH BANCGROUP PRESENT AND PRINCIPAL OCCUPATION FOR
EXECUTIVE OFFICER AND SUBSIDIARIES THE LAST FIVE YEARS
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Robert E. Lowder........... Chairman of the Board and Chief Chairman of the Board and Chief
55, 1981 Executive Officer, Colonial BancGroup; Executive Officer, Colonial
Chairman of the Board and Chief BancGroup; Chairman of the Board
Executive Officer, Colonial Bank; and Chief Executive Officer,
Director, Birmingham Region; Director, Colonial Bank; Chairman of the
Huntsville Region; Director, Northwest Board, Colonial Mortgage Co.;
Region; Director, East Central Region; Chairman of the Board and
Director, Gulf Coast Region; Director, President, Colonial Broadcasting,
Montgomery Region; Director, Central Montgomery, AL
Florida Region; Director, South
Florida Region; Director, Bay Area
Region; Director, Southwest Florida
Region; Director, Atlanta Region;
Chairman of the Board, Colonial
Mortgage Co.
P.L. "Mac" McLeod, Jr...... President, Colonial BancGroup; Director, President, Colonial BancGroup since
49, 1997 Montgomery Region; Director, North August 1997; President and CEO,
Georgia Region Colonial Bank Montgomery Region
1984 to August 1997, Montgomery,
AL
W. Flake Oakley, IV........ Executive Vice President, Chief Chief Financial Officer, Secretary
44, 1989 Financial Officer, Treasurer and and Treasurer, BancGroup, since
Secretary June 1991; Chief Financial Officer
and Treasurer since October, 1990;
Senior Vice President and
Controller from April 1989 to
October 1990, BancGroup,
Montgomery, AL
Young J. Boozer, III....... Executive Vice President -- Risk Executive Vice President -- Risk
49, 1986 Management -- Executive Vice Management, BancGroup; President,
President, Colonial BancGroup Building Colonial Investment Services 1993
Corp. to 1997, Montgomery, AL
Michelle Condon............ Executive Vice President -- Retail Executive Vice President -- Retail
43, 1995 Banking Banking, BancGroup since 1995;
Colonial Bank -- Vice President,
Budgeting & Planning, Colonial
Bank 1990 to 1995, Montgomery, AL
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ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is contained in BancGroup's proxy
statement dated March 13, 1998 under the caption "Executive Compensation" and is
incorporated herein by reference.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is contained in BancGroup's proxy
statement dated March 13, 1998 under the caption "Voting Securities and
Principal Stockholders" and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is contained in BancGroup's proxy
statement dated March 13, 1998 under the captions "Compensation Committee
Interlocks and Insider Participation" and "Executive Compensation" and is
incorporated herein by reference.
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
then 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.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The following financial statements are incorporated herein by reference
from Registrant's Annual Report to Shareholders for the fiscal year ended
December 31, 1997;
Consolidated Statements of Condition as of December 31, 1997 and 1996.
Consolidated Statements of Income for the years ended December 31, 1997,
1996 and 1995.
Consolidated Statements of Changes in Shareholders' Equity for the years
ended December 31, 1997, 1996 and 1995.
Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1996 and 1995.
Notes to Consolidated Financial Statements, including Parent Company
only information.
Report of Independent Accountants.
2. Financial Statements Schedules
The financial statement schedules required to be included pursuant to this
Item are not included herein because they are not applicable or the required
information is shown in the financial statements or notes thereto which are
incorporated by reference at subsection 1 of this Item, above.
9
<PAGE> 11
3. Exhibits
<TABLE>
<CAPTION>
EXHIBITS AND DESCRIPTION
------------------------
<S> <C> <C>
Exhibit 3 -- Articles of Incorporation and Bylaws:
3.1 -- Restated Certificate of Incorporation of the Registrant,
filed as Exhibit 4.1 to the Registrant's Current Report on
Form 8-K, dated February 21, 1995, and incorporated herein
by reference.
3.2 -- Amendment of Registrant's Restated Certificate of
Incorporation, dated April 16, 1997, filed as Exhibit
4(A)(2) to the Registrant's Registration Statement on Form
S-4 (File No. 333-26217), effective May 9, 1997, and
incorporated herein by reference.
3.3 -- Bylaws of the Registrant, as amended, filed as Exhibit 4.2
to the Registrant's Current Report on Form 8-K, dated
February 21, 1995, and incorporated herein by reference.
Exhibit 4 -- Instruments defining the rights of security holders:
4.1 -- Article 4 of the Restated Certificate of Incorporation of
the Registrant filed as Exhibit 4.1 to the Registrant's
Current Report on Form 8-K, dated February 21, 1995, and
incorporated herein by reference.
4.2 -- Amendment to Article 4 of Registrant's Restated Certificate
of Incorporation, dated April 16, 1997, filed as Exhibit
4(A)(2) to the Registrant's Registration Statement on Form
S-4 (File No. 333-26217), effective May 9, 1997, and
incorporated herein by reference.
4.3 -- Article II of the Bylaws of the Registrant filed as Exhibit
4.2 to the Registrant's Current Report on Form 8-K, dated
February 21, 1995, and incorporated herein by reference.
4.4 -- Dividend Reinvestment and Common Stock Purchase Plan of the
Registrant dated January 15, 1986, and Amendment No, 1
thereto dated as of June 10, 1986, filed as Exhibit 4(C) to
the Registrant's Registration Statement on Form S-4 (File
No, 33-07015), effective July 15, 1986, and incorporated
herein by reference.
4.5 -- All instruments defining the rights of holders of long-term
debt of the Corporation and its subsidiaries. Not filed
pursuant to clause 4(iii) of Item 601(b) of Regulation S-K;
to be furnished upon request of the Commission.
Exhibit 10 -- Material Contracts:
10.1 -- Second Amendment and Restatement of 1982 Incentive Stock
Plan of the Registrant, filed as Exhibit 4-1 to the
Registrant's Registration Statement on Form S-8 (File No.
33-41036), effective June 4, 1991, and incorporated herein
by reference.
10.2 -- Second Amendment and Restatement to 1982 Nonqualified Stock
Option Plan of the Registrant filed as Exhibit 4-2 to the
Registrant's Registration Statement on Form S-8 (File No.
33-41036), effective June 4, 1991, and incorporated herein
by reference.
10.3 -- 1992 Incentive Stock Option Plan of the Registrant, filed as
Exhibit 4-1 to Registrant's Registration Statement on Form
S-8 (File No. 33-47770), effective May 8, 1992, and
incorporated herein by reference.
10.4 -- 1992 Nonqualified Stock Option Plan of the Registrant, filed
as Exhibit 4-2 to Registrant's Registration Statement on
Form S-8 (File No. 33-47770), effective May 8, 1992, and
incorporated herein by reference.
10.5 -- Amended and Restated Loan Agreement by and between the
Registrant and SunTrust Bank, Central Florida, National
Association, dated December 20, 1996, filed as Exhibit
10(B)(2) to the Registrant's Registration Statement on Form
S-4, (File No. 333-20291), and incorporated herein by
reference.
</TABLE>
10
<PAGE> 12
<TABLE>
<CAPTION>
EXHIBITS AND DESCRIPTION
------------------------
<S> <C> <C>
10.6 -- The Colonial BancGroup, Inc. First Amended and Restated
Restricted Stock Plan for Directors, as amended, included as
Exhibit 10(C)(1) to the Registrant's Registration Statement
on Form S-4 (File No. 33-52952), and incorporated herein by
reference.
10.7 -- The Colonial BancGroup, Inc. Stock Bonus and Retention Plan,
included as Exhibit 10(C)(2) to the Registrant's
Registration Statement as Form S-4 (File No. 33-52952), and
incorporated herein by reference.
10.8 -- Indenture dated as of January 29, 1997 between The Colonial
BancGroup, Inc. and Wilmington Trust Company, as Debenture
Trustee dated as of, included as Exhibit 4(A) to
Registrant's Registration Statement on Form S-4 (File No.
333-22135), and incorporated herein by reference.
10.9 -- Agreement and Plan of Merger between The Colonial BancGroup,
Inc. and ASB Bancshares, Inc., dated as of August 28, 1997,
included as Appendix A to the Prospectus in Registrant's
Registration Statement on Form S-4 (File No. 333-39271), and
incorporated herein by reference.
10.10 -- Agreement and Plan of Merger between The Colonial BancGroup,
Inc. and South Florida Banking Corp., dated as of September
4, 1997, included as Appendix A to the Prospectus in
Registrant's Registration Statement on Form S-4 (File No.
333-39283), and incorporated herein by reference.
10.11 -- Agreement and Plan of Merger between The Colonial BancGroup,
Inc. and United American Holding Corporation, dated as of
September 8, 1997, included as Appendix A to the Prospectus
in Registrant's Registration Statement on Form S-4 (File No.
333-39277), and incorporated herein by reference.
10.12 -- Agreement and Plan of Merger between The Colonial BancGroup,
Inc. and First Central Bank, dated as of September 9, 1997,
included as Appendix A to the Prospectus in Registrant's
Registration Statement on Form S-4 (File No. 333-39267), and
incorporated herein by reference.
Exhibit 11 -- Statement Regarding Computation of Earnings Per Share.
Exhibit 12 -- Statement Regarding Computation of Ratio of Earnings to
Fixed Charges.
Exhibit 13 -- Portions of the 1997 Annual Report to Security Holders.
(Such annual report, except for those portions expressly
incorporated by reference in this report, is furnished
solely for the information of the Commission and is not
deemed to be filed as part of this report).
Exhibit 21 -- List of subsidiaries of the Registrant.
Exhibit 23 -- Consents of experts and counsel:
23.1 -- Consent of Coopers & Lybrand L.L.P.
Exhibit 24 -- Power of Attorney.
Exhibit 27 -- Financial Data Schedule (for SEC use only).
</TABLE>
(b)(1) Registrant's Current Reports on Form 8-K dated October 30, 1997 and
November 17, 1997, and incorporated herein by reference.
11
<PAGE> 13
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Montgomery, Alabama, on the 30 day of March, 1998.
THE COLONIAL BANCGROUP, INC.
By: /s/ ROBERT E. LOWDER
------------------------------------
Robert E. Lowder
Its Chairman of the Board of
Directors and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ ROBERT E. LOWDER Chairman of the Board of **
- ------------------------------------------------ Directors and Chief
Robert E. Lowder Executive Officer
/s/ W. FLAKE OAKLEY, IV Chief Financial Officer, **
- ------------------------------------------------ Secretary and Treasurer
W. Flake Oakley, IV (Principal Financial Officer
and Principal Accounting
Officer)
* Director **
- ------------------------------------------------
Lewis Beville
* Director **
- ------------------------------------------------
Young J. Boozer
* Director **
- ------------------------------------------------
William Britton
* Director **
- ------------------------------------------------
Jerry J. Chesser
* Director **
- ------------------------------------------------
Augustus K. Clements, III
* Director **
- ------------------------------------------------
Robert C. Craft
* Director **
- ------------------------------------------------
Patrick F. Dye
* Director **
- ------------------------------------------------
Clinton O. Holdbrooks
* Director **
- ------------------------------------------------
D. B. Jones
* Director **
- ------------------------------------------------
Harold D. King
* Director **
- ------------------------------------------------
John Ed Mathison
</TABLE>
12
<PAGE> 14
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director **
- ------------------------------------------------
Milton E. McGregor
* Director **
- ------------------------------------------------
John C. H. Miller, Jr.
* Director **
- ------------------------------------------------
Joe D. Mussafer
* Director **
- ------------------------------------------------
William E. Powell
* Director **
- ------------------------------------------------
J. Donald Prewitt
* Director **
- ------------------------------------------------
Jack H. Rainer
* Director **
- ------------------------------------------------
Jimmy Rane
* Director **
- ------------------------------------------------
Frances E. Roper
* Director **
- ------------------------------------------------
Simuel Sippial
* Director **
- ------------------------------------------------
Ed V. Welch
</TABLE>
* The undersigned, acting pursuant to a power of attorney, has signed this
Annual Report on Form 10-K for and on behalf of the persons indicated above as
such persons' true and lawful attorney-in-fact and in their names, places and
stead, in the capacities indicated above and on the date indicated below.
/s/ W. FLAKE OAKLEY, IV
- --------------------------------------
W. Flake Oakley, IV
Attorney-in-Fact
** Dated: March 30, 1998
13
<PAGE> 15
EXHIBIT INDEX
<TABLE>
<S> <C> <C> <C>
Exhibit 3 -- Articles of Incorporation and Bylaws:
3.1 -- Restated Certificate of Incorporation of the Registrant,
filed as Exhibit 4.1 to the Registrant's Current Report on
Form 8-K, dated February 21, 1995, and incorporated herein
by reference..............................................
3.2 -- Amendment of Registrant's Restated Certificate of
Incorporation, dated April 16, 1997, filed as Exhibit
4(A)(2) to the Registrant's Registration Statement on Form
S-4 (File No. 333-26217), effective May 9, 1997, and
incorporated herein by reference.
3.3 -- Bylaws of the Registrant, as amended, filed as Exhibit 4.2
to the Registrant's Current Report on Form 8-K, dated
February 21, 1995, and incorporated herein by reference...
Exhibit 4 -- Instruments defining the rights of security holders:
4.1 -- Article 4 of the Restated Certificate of Incorporation of
the Registrant filed as Exhibit 4.1 to the Registrant's
Current Report on Form 8-K, dated February 21, 1995, and
incorporated herein by reference..........................
4.2 -- Amendment to Article 4 of Registrant's Restated Certificate
of Incorporation, dated April 16, 1997, filed as Exhibit
4(A)(2) to the Registrant's Registration Statement on Form
S-4 (File No. 333-26217), effective May 9, 1997, and
incorporated herein by reference.
4.3 -- Article II of the Bylaws of the Registrant filed as Exhibit
4.2 to the Registrant's Current Report on Form 8-K, dated
February 21, 1995, and incorporated herein by reference...
4.4 -- Dividend Reinvestment and Class A Common Stock Purchase Plan
of the Registrant dated January 15, 1986, and Amendment
No. 1 thereto dated as of June 10, 1986, filed as Exhibit
4(C) to the Registrant's Registration Statement on Form
S-4 (File No. 33-07015), effective July 15, 1986, and
incorporated herein by
reference.................................................
4.5 -- All instruments defining the rights of holders of long-term
debt of the Corporation and its subsidiaries. Not filed
pursuant to clause 4(iii) of Item 601(b) of Regulation
S-K; to be furnished upon request of the Commission.......
Exhibit 10 -- Material Contracts:
10.1 -- Second Amendment and Restatement of 1982 Incentive Stock
Plan of the Registrant, filed as Exhibit 4-1 to the
Registrant's Registration Statement on Form S-8 (File No.
33-41036), effective June 4, 1991, and incorporated herein
by reference..............................................
10.2 -- Second Amendment and Restatement to 1982 Nonqualified Stock
Option Plan of the Registrant filed as Exhibit 4-2 to the
Registrant's Registration Statement on Form S-8 (File No.
33-41036), effective June 4, 1991, and incorporated herein
by reference..............................................
10.3 -- 1992 Incentive Stock Option Plan of the Registrant, filed as
Exhibit 4-1 to Registrant's Registration Statement on Form
S-8 (File No. 33-47770), effective May 8, 1992, and
incorporated herein by reference..........................
10.4 -- 1992 Nonqualified Stock Option Plan of the Registrant, filed
as Exhibit 4-2 to Registrant's Registration Statement on
Form S-8 (File No. 33-47770), effective May 8, 1992, and
incorporated herein by reference..........................
</TABLE>
14
<PAGE> 16
<TABLE>
<S> <C> <C> <C>
10.5 -- Amended and Restated Loan Agreement by and between the
Registrant and SunTrust Bank, Central Florida, National
Association, dated December 20, 1996, filed as Exhibit
10(B)(2) to the Registrant's Registration Statement on
Form S-4 (File No. 333-20291), and incorporated herein by
reference.................................................
10.6 -- The Colonial BancGroup, Inc. First Amended and Restated
Restricted Stock Plan for Directors, as amended, included
as Exhibit 10(C)(1) to the Registrant's Registration
Statement as Form S-4 (File No. 33-52952), and
incorporated herein by reference..........................
10.7 -- The Colonial BancGroup, Inc. Stock Bonus and Retention Plan,
included as Exhibit 10(C)(2) to the Registrant's
Registration Statement as Form S-4 (File No. 33-52952),
and incorporated herein by reference......................
10.8 -- Indenture dated as of January 29, 1997 between The Colonial
BancGroup, Inc. and Wilmington Trust Company, as Debenture
Trustee dated as of, included as Exhibit 4(A) to
Registrant's Registration Statement on Form S-4 (File No.
333-22135), and incorporated herein by reference.
10.9 -- Agreement and Plan of Merger between The Colonial BancGroup,
Inc. and ASB Bancshares, Inc., dated as of August 28,
1997, included as Appendix A to the Prospectus in
Registrant's Registration Statement on Form S-4 (File No.
333-39271), and incorporated herein by reference.
10.10 -- Agreement and Plan of Merger between The Colonial BancGroup,
Inc. and South Florida Banking Corp., dated as of
September 4, 1997, included as Appendix A to the
Prospectus in Registrant's Registration Statement on Form
S-4 (File No. 333-39283), and incorporated herein by
reference.
10.11 -- Agreement and Plan of Merger between The Colonial BancGroup,
Inc. and United American Holding Corporation, dated as of
September 8, 1997, included as Appendix A to the
Prospectus in Registrant's Registration Statement on Form
S-4 (File No. 333-39277), and incorporated herein by
reference.
10.12 -- Agreement and Plan of Merger between The Colonial BancGroup,
Inc. and First Central Bank, dated as of September 9,
1997, included as Appendix A to the Prospectus in
Registrant's Registration Statement on Form S-4 (File No.
333-39267), and incorporated herein by reference.
Exhibit 11 -- Statement Regarding Computation of Earnings Per Share.......
Exhibit 12 -- Statement Regarding Computation of Ratio of Earnings to
Fixed Charges.............................................
Exhibit 13 -- Portions of the 1997 Annual Report to Security Holders.
(Such annual report, except for those portions expressly
incorporated by reference in this report, is furnished
solely for the information of the Commission and is not
deemed to be filed as part of this report.)...............
Exhibit 21 -- List of subsidiaries of the Registrant......................
Exhibit 23 -- Consents of experts and counsel:
23.1 -- Consent of Coopers & Lybrand L.L.P..........................
Exhibit 24 -- Power of Attorney...........................................
Exhibit 27 -- Financial Data Schedule (for SEC use only)..................
</TABLE>
(b)(1) Registrant's Current Reports on Form 8-K dated October 30, 1997 and
November 17, 1997 and incorporated herein by reference.
15
<PAGE> 17
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
EXHIBITS TO FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
COMMISSION FILE NO. 0-07945
THE COLONIAL BANCGROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<PAGE> 1
EXHIBIT 11
THE COLONIAL BANCGROUP, INC.
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
A. Net income............................................
$77,191 $50,214 $46,465
B. Interest expense on convertible debentures............
470 689 1,660
C. Tax effect of (B) above...............................
175 244 585
D. Average basic shares outstanding......................
42,034 38,615 35,696
E. Dilutive potential common shares(1)...................
1,402 1,770 3,725
EARNINGS PER COMMON SHARE:
Net income:
Basic (A/D)............................................
$ 1.84 $ 1.30 $ 1.30
Diluted (A+B-C)/(D+E)..................................
$ 1.78 $ 1.25 $ 1.21
</TABLE>
- ---------------
(1) Includes the effect of the average contingent shares from BancGroup's issue
of convertible subordinated debentures; computed by dividing the
outstanding balance of the convertible debentures by the conversion price.
Also includes the effect of stock options.
<PAGE> 1
EXHIBIT 12
THE COLONIAL BANCGROUP, INC.
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
A. Income before income taxes,
extraordinary items and the
cumulative effect of a change in
accounting for income taxes.......... $123,101 $ 77,518 $ 72,230 $ 51,737 $ 36,636
Fixed charges:
Interest expense....................... 249,488 205,843 170,483 105,797 81,008
1/3 Rent expense...................... 3,658 3,136 2,816 2,366 1,833
-------- -------- -------- -------- --------
B. Total fixed charges.................... 253,146 208,979 173,299 108,163 82,841
-------- -------- -------- -------- --------
C. Sum of A and B......................... $376,247 $286,497 $245,529 $159,900 $119,477
======== ======== ======== ======== ========
Ratio of earnings to fixed charges
(C/B).................................. 1.49 1.37 1.42 1.48 1.44
</TABLE>
<PAGE> 1
EXHIBIT 13
PORTIONS OF THE 1997 ANNUAL REPORT TO SECURITY HOLDERS
(SUCH ANNUAL REPORT, EXCEPT FOR THOSE PORTIONS EXPRESSLY INCORPORATED BY
REFERENCE IN THIS REPORT, IS FURNISHED SOLELY FOR THE INFORMATION OF THE
COMMISSION AND IS NOT DEEMED TO BE FILED AS PART OF THIS REPORT.)
<PAGE> 2
EXHIBIT 13
Colonial BancGroup, Inc.
SELECTED FINANCIAL DATA97
For the years ended
December 31, 1997, 1996, 1995, 1994 and 1993
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
Interest income $497,987 $408,532 $341,826 $255,758 $204,322
Interest expense 249,488 205,843 170,483 105,797 81,008
- ----------------------------------------------------------------------------------------------------
Net interest income 248,499 202,689 171,343 149,961 123,314
Provision for possible loan losses 13,026 12,545 8,986 8,254 11,767
- ----------------------------------------------------------------------------------------------------
Net interest income after provision for
possible loan losses 235,473 190,144 162,357 141,707 111,547
Noninterest income 87,759 70,888 60,527 54,149 50,990
Noninterest expense 194,919 167,131 148,916 142,771 124,941
SAIF special assessment(1) -- 4,465 -- -- --
Acquisition expense(2) 5,212 11,918 1,738 1,348 960
- ----------------------------------------------------------------------------------------------------
Income before income taxes 123,101 77,518 72,230 51,737 36,636
Applicable income taxes 45,910 27,304 25,765 17,243 11,249
- ----------------------------------------------------------------------------------------------------
Income before extraordinary items
and the cumulative effect of a change
in accounting for income taxes 77,191 50,214 46,465 34,494 25,387
Extraordinary items, net of income taxes -- -- -- -- (396)
Cumulative effect of a change in
accounting for income taxes -- -- -- -- 3,890
- ----------------------------------------------------------------------------------------------------
Net income $ 77,191 $ 50,214 $ 46,465 $ 34,494 $ 28,881
====================================================================================================
Income excluding SAIF special assessment
and acquisition expense(1)(2)(3) $ 81,361 $ 62,651 $ 47,855 $ 35,572 $ 26,155
====================================================================================================
EARNINGS PER SHARE
Income excluding SAIF special assessment
and acquisition expense:(1)(2)(3)
Basic $ 1.94 $ 1.62 $ 1.34 $ 1.05 $ 0.88
Diluted $ 1.88 $ 1.55 $ 1.24 $ 0.98 $ 0.85
Income before extraordinary items and the
cumulative effect of a change in
accounting for income taxes:
Basic $ 1.84 $ 1.30 $ 1.30 $ 1.02 $ 0.86
Diluted $ 1.78 $ 1.25 $ 1.21 $ 0.95 $ 0.82
Net income:
Basic $ 1.84 $ 1.30 $ 1.30 $ 1.02 $ 0.97
Diluted $ 1.78 $ 1.25 $ 1.21 $ 0.95 $ 0.93
Average shares outstanding:
Basic 42,034 38,615 35,696 33,907 29,644
Diluted 43,436 40,385 39,421 37,441 32,806
Cash dividends per common share:
Common $ 0.60 $ 0.54 $ 0.3375 -- --
Class A -- -- $ 0.1125 $ 0.40 $ 0.355
Class B -- -- $ 0.0625 $ 0.20 $ 0.155
====================================================================================================
</TABLE>
(1)Legislation approving a one-time special assessment to recapitalize the
Savings Association Insurance Fund ("SAIF") resulted in $4,465,000 in expense
before income taxes and $2,903,000 net of applicable income taxes in 1996.
(2)Acquisition expenses reflect costs and related restructuring expense of
business combinations discussed in Note 2 to the Consolidated Financial
Statements.
(3)1993 also excludes the effect of extraordinary items and the cumulative
effect of a change in accounting for income taxes.
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
22
<PAGE> 3
<TABLE>
<CAPTION>
For the years ended
December 31, 1997, 1996, 1995, 1994 and 1993
(In thousands, except per share amounts)
1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF CONDITION DATA
At year-end:
Total assets $6,850,828 $5,669,761 $4,960,165 $3,865,936 $3,728,270
Loans, net of unearned income 5,176,926 4,216,178 3,645,727 2,736,041 2,289,233
Mortgage loans held for sale 225,331 157,966 112,203 61,556 368,515
Deposits 5,255,830 4,299,721 3,869,012 3,067,500 2,990,190
Long-term debt 90,252 39,092 47,688 86,662 57,397
Shareholders' equity 494,254 402,708 352,731 275,319 256,866
Average balances:
Total assets 6,368,047 5,288,444 4,373,227 3,708,350 3,015,787
Interest-earning assets 5,826,333 4,836,969 3,991,723 3,349,026 2,681,428
Loans, net of unearned income 4,803,874 3,932,282 3,123,407 2,477,768 1,813,569
Mortgage loans held for sale 149,309 135,135 98,785 135,046 248,502
Deposit 4,971,043 4,065,341 3,451,748 2,994,868 2,407,015
Shareholders' equity 459,666 385,881 308,532 269,353 200,217
Book value per share at year-end $ 11.62 $ 10.29 $ 9.43 $ 7.93 $ 7.69
Tangible book value per share at year-end $ 10.04 $ 9.53 $ 8.62 $ 7.35 $ 7.18
================================================================================================================================
SELECTED RATIOS
Income excluding SAIF special assessment
and acquisition expense to:(1)(2)(3)
Average assets 1.28% 1.18% 1.09% 0.96% 0.87%
Average shareholders' equity 17.69 16.24 15.51 13.21 13.06
Income before extraordinary items and the
cumulative effect of a change in
accounting for income taxes to:
Average assets 1.21 0.95 1.06 0.93 0.84
Average shareholders' equity 16.79 13.01 15.06 12.81 12.68
Net income to:
Average assets 1.21 0.95 1.06 0.93 0.96
Average shareholders' equity 16.79 13.01 15.06 12.81 14.42
Efficiency ratio excluding SAIF and
acquisition expense(1)(2) 57.56 60.52 63.64 69.19 71.31
Dividend payout ratio 32.61 41.54 34.62 39.22 36.60
Average equity to average total assets 7.22 7.30 7.06 7.26 6.64
Total nonperforming assets to
net loans, other real estate and repossessions 0.71 0.81 0.85 1.28 1.79
Net charge-offs to average loans 0.23 0.17 0.18 0.12 0.34
Allowance for possible loan losses to
total loans (net of unearned income) 1.20 1.27 1.29 1.55 1.61
Allowance for possible loan losses to
nonperforming loans(4) 255% 223% 258% 238% 215%
================================================================================================================================
</TABLE>
(1)Legislation approving a one-time special assessment to recapitalize the
Savings Association Insurance Fund ("SAIF") resulted in $4,465,000 in expense
before income taxes and $2,903,000 net of applicable income taxes in 1996.
(2)Acquisition expenses reflect costs and related restructuring expense of
business combinations discussed in Note 2 to the Consolidated Financial
Statements.
(3)1993 also excludes the effect of extraordinary items and the cumulative
effect of a change in accounting for income taxes.
(4)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 40.
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
23
<PAGE> 4
1997-1996
SELECTED QUARTERLY FINANCIAL DATA 97
<TABLE>
<CAPTION>
(In thousands, except per share amounts)
1997 1996
---------------------------------------- ---------------------------------------
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 $131,168 $127,540 $122,014 $117,265 $107,496 $104,844 $100,371 $95,821
Interest expense 65,358 63,831 61,178 59,121 54,259 52,764 50,155 48,665
- -------------------------------------------------------------------------------------------------------------------
Net interest income 65,810 63,709 60,836 58,144 53,237 52,080 50,216 47,156
Provision for loan losses 4,193 2,578 3,367 2,888 6,252 2,669 1,851 1,773
- -------------------------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 61,617 61,131 57,469 55,256 46,985 49,411 48,365 45,383
- -------------------------------------------------------------------------------------------------------------------
Net income $ 20,488 $ 20,230 $ 18,589 $ 17,884 $ 6,405 $ 13,635 $ 16,073 $14,101
- -------------------------------------------------------------------------------------------------------------------
Income excluding SAIF
special assessment and
acquisition expense(1)(2) $ 21,858 $ 20,826 $ 20,187 $ 18,490 $ 14,651 $ 17,040 $ 16,429 $14,531
- -------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE:
Income excluding SAIF
special assessment and
acquisition expense:(1)(2)
Basic $ 0.51 $ 0.49 $ 0.49 $ 0.45 $ 0.38 $ 0.44 $ 0.42 $ 0.38
Diluted $ 0.50 $ 0.48 $ 0.47 $ 0.43 $ 0.36 $ 0.42 $ 0.41 $ 0.36
Net income:
Basic $ 0.48 $ 0.48 $ 0.45 $ 0.43 $ 0.16 $ 0.35 $ 0.42 $ 0.37
Diluted $ 0.47 $ 0.47 $ 0.43 $ 0.41 $ 0.16 $ 0.34 $ 0.40 $ 0.35
===================================================================================================================
</TABLE>
(1)Legislation approving a one-time special assessment to recapitalize the
Savings Association Insurance Fund ("SAIF") resulted in $4,465,000 in expense
before income taxes and $2,903,000 net of applicable income taxes in 1996.
(2)Acquisition expenses reflect costs and related restructuring expense of
business combinations discussed in Note 2 to the Consolidated Financial
Statements.
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
24
<PAGE> 5
Financial Condition and Results of Operations
MANAGEMENT'S DISCUSSION AND ANALYSIS97
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 detailed analysis of the financial results of The
Colonial BancGroup, Inc. and subsidiaries ("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 46 business combinations BancGroup has grown to a
$6.9 billion multistate bank holding company with substantial centralized
operations, local lending autonomy with centralized loan review and a strong
commercial lending function. During 1995, BancGroup expanded into the Atlanta
metropolitan market through the acquisition of Mt. Vernon Financial Corp. In
1996, the Company continued its expansion in the Atlanta area with the merger of
Commercial Bancorp of Georgia, Inc. and moved into Florida with the merger of
Orlando based Southern Banking Corporation. In 1997, expansion continued in
central Florida with the mergers of Tomoka Bancorp, Inc. in the Daytona area,
First Family Financial Corporation in Eutis and First Commerce Banks of Florida,
Inc. in Winter Haven. BancGroup entered four new banking markets during 1997
which include South Florida (Miami area), Southwest Florida (Ft. Myers area),
Bay Area (Tampa) and North Georgia (Dalton). The mergers of Jefferson Bancorp,
Inc. and Dadeland BancShares, Inc. in Miami and Great Southern Bancorp in Palm
Beach established the South Florida region. The merger with First Independence
Bank of Florida in Ft. Myers established the Company's presence in the Southwest
Florida market. The merger with Fort Brooke Bancorporation in Tampa created
BancGroup's Bay Area region. Expansion into North Georgia was established with
the merger of D/W Bancshares, Inc. in Dalton. In 1998, the Company increased its
presence in the Central, Bay Area and Southwest Florida markets with the mergers
of United American Holding Corporation in Orlando, First Central Bank in St.
Petersburg and South Florida Banking Corp. in Bonita Springs, respectively.
BancGroup also increased its market share in East Central Alabama with the
merger of ASB Bancshares, Inc. Upon consummation of the 1998 mergers,
BancGroup's assets increased to approximately $7.6 billion. BancGroup currently
has a pending merger with Commercial Bank of Nevada in Las Vegas, Nevada.
BancGroup's expansion in Georgia, Florida and now in Nevada reflects a corporate
goal to establish its community banking concept in the higher growth market
areas not only in the Southeast, but other areas of the country as well.
More importantly, BancGroup's operating earnings (income before
extraordinary items, accounting changes, the one-time special assessment to
recapitalize the Savings Association Insurance Fund ("SAIF") and acquisition
expenses) per share have increased an average of 21.9% per year since 1993 and
in 1997 the Company achieved a 17.69% return on average equity and a 1.28%
return on average assets (based on operating earnings).
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 local management team and developing a strong customer base,
particularly with respect to lending relationships.
- - CONTINUITY AND CONSISTENCY OF MANAGEMENT: Robert E. Lowder has been Chairman
and CEO of BancGroup since inception and Chairman and CEO of Colonial Mortgage
Company ("CMC") for 27 years. BancGroup's President, P.L. (Mac) McLeod, has
been with BancGroup for 16 years, previously serving as President of the
Montgomery Region bank. CMC's President Ronnie Wynn, has been in that position
for 21 years and is a former president of the Mortgage Bankers Association of
America.
- - COMMERCIAL LENDING: Commercial lending primarily through groups located in the
Birmingham, Huntsville, Montgomery and Anniston, Alabama as well as the
Atlanta, Georgia and Orlando, Miami and Tampa, Florida metropolitan centers
has been a major factor in the Company's growth. Commercial real estate and
other commercial loans increased 23% and 14% in 1997 and 1996, respectively.
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, BancGroup acquired CMC in February 1995, one of
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
25
<PAGE> 6
the 50 largest mortgage loan servicers in the country. BancGroup has increased
residential mortgage loans 162% from $837 million at December 31, 1993 to $2.2
billion at December 31, 1997. 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 $12.9 billion portfolio of loans
serviced for others provides a steady source of noninterest income.
- - GROWTH MARKET EXPANSION: The Company's strategy has concentrated on expanding
into growth markets by merging with banks that have strong local management.
BancGroup has been most successful in Florida, where over the twenty-month
period, from July 1996 through February 1998, twelve acquisitions have been
completed creating four regional banks in major growth markets of Florida. The
Central Florida Region now consists of $880 million in assets and 33 branches
in Orlando, Daytona and the Lakeland/ Winter Haven market areas. The South
Florida Region consists of $742 million in assets and 19 branches from Miami
to West Palm Beach. The Bay Area Region consists of $271 million in assets
with branches in Tampa and St. Petersburg. The Southwest Florida Region
consists of $320 million in assets and 15 branches in Naples, Bonita Springs,
and Ft. Myers. The management teams in each of these areas, along with the
significant physical presence in each area, should provide a foundation for
significant internal growth as well as an efficient platform for future
expansion.
In addition to the Florida expansion, during 1997 BancGroup added
to its Atlanta, Georgia locations with the acquisition of $139 million in
assets and three branches in Dalton and established a new loan production
office in Chattanooga, TN.
BancGroup increased its Alabama market share with the March 1997
acquisition of a bank with $55 million in assets and six branches between
Mobile and Montgomery and the February 1998 acquisition of a $159 million
asset bank with nine branches between Birmingham and Chattanooga.
With the announcement of the pending merger of Commercial Bank of Nevada
in Las Vegas, Nevada, BancGroup has made its first step into growth markets
outside the Southeast. The Las Vegas market represents one of the fastest
growing markets in the country and Nevada is ranked first in the country with
respect to projected population growth over the next twenty years. For a
number of years Colonial Mortgage Company has operated on a national basis
focusing on the highest growth markets in the country. This acquisition
represents the initiation of BancGroup's strategy to parallel the mortgage
company's focus and provide its banking services in some of those same
markets.
- - COST CONTROL: An operational and organizational infrastructure established in
prior years has allowed the Company to grow significantly and improve the
efficiency ratio from 71.31% in 1993 to 57.56% in 1997. 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 low marginal cost. This same structure should also allow for additional
efficiencies in the recently acquired institutions which are not reflected in
the operating costs presented.
- - 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 1997 by BancGroup's acquisition activities and its 9.75%
internal growth in loans. CMC provides asset generating sources for mortgage
loans, as noted, and mortgage servicing rights. The book value of CMC's
mortgage servicing rights increased by 43.44% in 1997 through the net addition
of $2.2 billion to its servicing portfolio.
- - 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. Nonperforming assets as a
percentage of loans and other real estate was reduced to .71% at December 31,
1997, its lowest level in five years, primarily through sales of other real
estate. Net charge-offs over the past five years have consistently compared
favorably with the Company's peer group and were only .23% of average loans in
1997 and .17% in 1996.
- - PRODUCT AND SERVICE ENHANCEMENTS: In 1997, BancGroup continued its
commitment to expand its services through increased efforts in private
banking, additional products, asset management through trust services and
investment sales products and services. With BancGroup's expansion into the
Florida market, an international banking unit is being established to provide
and service the needs of customers involved in international activities. In
1995 and 1996 steps were taken to provide better customer access to products
and services. As part of this effort the Company 1) issued the Colonial Check
Card, a debit card allowing customers to make purchases with funds from their
checking account, 2) established telephone banking, giving customers the
capability to pay bills and transfer funds by phone, and 3) created computer
banking services allowing customers to conduct banking business from their
home computers. Customers needs are constantly changing, and BancGroup will
continue to investigate methods of improving customer service through new
services, product enhancements and technological advances.
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
26
<PAGE> 7
- - 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 1997.
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.
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ACCOUNTING DATE BANCGROUP TOTAL TOTAL TOTAL
FINANCIAL INSTITUTIONS TREATMENT CONSUMMATED SHARES ASSETS LOANS DEPOSITS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995
Colonial Mortgage Company (AL) Pooling 02/17/95 4,545,454 $ 71,000 $ 1,675 $ --
Brundidge Banking Company (AL) Purchase 03/31/95 532,868 56,609 1,577 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
- ------------------------------------------------------------------------------------------------------------
1996*
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
- ------------------------------------------------------------------------------------------------------------
1997
Jefferson Bancorp, Inc. (FL) Pooling 01/03/97 3,854,952 472,732 322,857 405,836
Tomoka Bancorp, Inc. (FL) Pooling 01/03/97 661,992 76,700 51,600 68,200
First Family Financial Corp. (FL) Purchase 01/09/97 330,564 167,300 117,500 156,700
D/W Bankshares, Inc. (GA) Pooling 01/31/97 1,016,548 138,686 71,317 124,429
Shamrock Holdings, Inc. (AL) Purchase 03/05/97 -- 54,500 19,300 46,400
Fort Brooke Bancorporation (FL) Pooling 04/22/97 1,599,973 208,800 141,500 185,800
Great Southern Bancorp (FL) Pooling 07/01/97 927,811 121,009 98,100 106,673
First Commerce Banks of Florida, Inc. (FL) Purchase 07/01/97 685,695 97,093 64,472 88,302
Dadeland BancShares, Inc. (FL) Purchase 09/15/97 -- 169,946 103,199 145,491
First Independence Bank of Florida (FL) Pooling 10/01/97 503,932 65,048 50,699 58,283
- ------------------------------------------------------------------------------------------------------------
</TABLE>
* 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.
In addition to the combinations shown above, BancGroup has closed or has plans
to close the following combinations after December 31,1997. The balances
reflected are as of December 31, 1997. The following business combinations have
not been reflected in the financial statements at December 31, 1997.
(Dollars in thousands)
<TABLE>
<CAPTION>
ACCOUNTING DATE BANCGROUP TOTAL TOTAL TOTAL
FINANCIAL INSTITUTIONS TREATMENT CONSUMMATED SHARES ASSETS LOANS DEPOSITS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
United American Holding Corp. (FL) Pooling 02/02/98 2,113,206 $275,263 $197,623 $236,773
ASB Bancshares, Inc. (AL) Purchase 02/05/98 467,257 158,656 109,382 133,322
First Central Bank (FL) Pooling 02/11/98 688,684 62,897 40,451 52,048
South Florida Banking Corp. (FL) Pooling 02/12/98 1,932,229 255,769 172,992 226,999
Commercial Bank of Nevada (NV) Pooling Pending 842,157 120,108 84,751 108,661
</TABLE>
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
27
<PAGE> 8
The combination with CMC in 1995 was accounted for using a method of
accounting similar to a pooling of interests. The 1996 combinations with
Southern and Commercial and the 1997 combinations with Jefferson, D/W Bankshares
and Fort Brooke 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 1997
combinations with Tomoka, Great Southern and First Independence were accounted
for using the pooling-of-interests method; however, due to immateriality, the
prior year financial statements were not restated. 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 1996 and 1997 cannot reasonably be determined.
The combinations have had an impact on the comparisons of operating results
for 1996 and 1997 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 the 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, 1997, CMC provided servicing for approximately 157,000
customers with a total outstanding balance of $12.9 billion. The servicing
revenues from this portfolio plus other fee income from CMC provided
approximately 52% and 51% of BancGroup's noninterest income for 1997 and 1996.
CONSUMER REAL ESTATE LENDING
Through its wholesale and retail offices, CMC originated over $4.2 billion in
residential real estate loans from 1995 through 1997. 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 34 states through 4 regional
offices and services 157,000 customers located in 44 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 the greater
Seattle area, Las Vegas, Phoenix, Dallas/Ft. Worth, Cincinnati and Greensboro,
N.C.
CAPITAL UTILIZATION
BancGroup provides a capital base for the expansion of CMC's low cost
servicing operation through bulk purchases of servicing. During 1996 and 1997,
CMC acquired a total of $1.8 billion 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 $187 million and $157 million
in 1997 and 1996, respectively. These balances represent 4.3% of the total
increase of 20.9% in average noninterest bearing demand deposits from 1996 to
1997. These balances have a positive impact on BancGroup's net interest margin
by providing a noninterest bearing source of funds.
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.
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
28
<PAGE> 9
REVIEW OF RESULTS OF OPERATIONS
OVERVIEW
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 summary of BancGroup's results
of operations discusses the related impact of each line of business to
the earnings of the Company.
LINE OF BUSINESS RESULTS
(Dollars in thousands)
<TABLE>
<CAPTION>
COLONIAL COLONIAL CONSOLIDATED
YEAR ENDED DECEMBER 31, 1997 BANK MORTGAGE OTHER(1) BANCGROUP
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net interest income $ 247,100 $ 7,196 ($5,797) $ 248,499
Provision for possible loan losses (13,026) -- -- (13,026)
Noninterest income 41,716 45,565 478 87,759
Amortization and depreciation 16,412 17,796 -- 34,208
Noninterest expense 144,851 17,132 3,940 165,923
- ---------------------------------------------------------------------------------------
Pretax income 114,527 17,833 (9,259) 123,101
Income taxes (41,739) (6,688) 2,517 (45,910)
- ---------------------------------------------------------------------------------------
Net income 72,788 11,145 (6,742) 77,191
Acquisition expense, net of taxes 3,674 -- 496 4,170
- ---------------------------------------------------------------------------------------
Income excluding acquisition expense $ 76,462 $ 11,145 ($6,246) $ 81,361
- ---------------------------------------------------------------------------------------
COLONIAL COLONIAL CONSOLIDATED
YEAR ENDED DECEMBER 31, 1996 BANK MORTGAGE OTHER(1) BANCGROUP
- ---------------------------------------------------------------------------------------
Net interest income $ 197,921 $ 6,354 ($1,586) $ 202,689
Provision for possible loan losses (12,545) -- -- (12,545)
Noninterest income 32,945 36,249 1,694 70,888
Amortization and depreciation 11,313 13,088 -- 24,401
Noninterest expense 133,608 16,576 8,929 159,113
- ---------------------------------------------------------------------------------------
Pretax income 73,400 12,939 (8,821) 77,518
Income taxes (24,702) (4,834) 2,232 (27,304)
- ---------------------------------------------------------------------------------------
Net income 48,698 8,105 (6,589) 50,214
SAIF assessment, net of taxes 2,903 -- -- 2,903
Acquisition expense, net of taxes 8,567 -- 967 9,534
- ---------------------------------------------------------------------------------------
Income excluding SAIF and acquisition
expense $ 60,168 $ 8,105 ($5,622) $ 62,651
- ---------------------------------------------------------------------------------------
COLONIAL COLONIAL CONSOLIDATED
YEAR ENDED DECEMBER 31, 1996 BANK MORTGAGE OTHER(1) BANCGROUP
- ---------------------------------------------------------------------------------------
Net interest income $ 168,988 $ 4,690 ($2,335) $171,343
Provision for possible loan losses (8,986) -- -- (8,986)
Noninterest income 31,959 28,353 215 60,527
Amortization and depreciation 7,771 9,518 -- 17,289
Noninterest expense 113,563 13,626 6,176 133,365
- ---------------------------------------------------------------------------------------
Pretax income 70,627 9,899 (8,296) 72,230
Income taxes (23,806) (3,813) 1,854 (25,765)
- ---------------------------------------------------------------------------------------
Net income 46,821 6,086 (6,442) 46,465
Acquisition expense, net of taxes 1,066 -- 324 1,390
- ---------------------------------------------------------------------------------------
Income excluding acquisition expense $ 47,887 $ 6,086 ($6,118) $ 47,855
- ---------------------------------------------------------------------------------------
</TABLE>
(1) Represents holding company financing costs and certain unallocated expenses.
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
29
<PAGE> 10
Consistently increasing net income is a primary goal of management.
Operating earnings, as restated, increased 30% in 1997, 31% in 1996 and 35% in
1995. The most significant factors affecting income for 1997, 1996 and 1995 are
highlighted below and discussed in greater detail in subsequent sections.
- An increase in 1997 of 20.5% in average earning assets. This follows an
increase of 21.2% in 1996.
- An increase of $16.9 million (24%) and $10.4 million (17%) in
noninterest income in 1997 and 1996, respectively.
- Maintenance of high asset quality and reserve coverage ratios. Net
charge-offs were $11.2 million or .23% of average net loans in 1997 and $6.6
million or .17% of average net loans in 1996.
- Loan growth, excluding acquisitions, of 9.75% in 1997 following an increase
of 16.4% in 1996.
- An increase in average loans as a percent of average earning assets to 82.5%
in 1997 from 81.3% in 1996.
- Noninterest expenses, excluding SAIF special assessment and acquisition
expense, as a percent of average assets were reduced to 3.06% in 1997 from
3.16% in 1996.
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 4.31% in 1997 compared to 4.24% in 1996 and 4.35% in 1995. Over this
period net interest income on a fully tax equivalent basis increased to $251
million in 1997 from $205 million in 1996 and $173 million in 1995. The
principal factors affecting the Company's yields and net interest income are
discussed on the following pages.
LEVELS OF INTEREST RATES
In 1996 and 1997 rates remained fairly constant resulting in little impact on
interest spreads or margins. Short-term rates increased into late 1995 before
starting to decline and leveling off in 1996 and remaining relatively constant
through 1997. For example, the average fed funds rate for overnight bank
borrowings reached 6.00% midyear 1995 before decreasing to 5.95% in December
1995 and 5.25% in February 1996 before increasing to 5.50% in March 1997. The
Company's prime rate increased to 9% midyear 1995 before declining to 8.5% in
December 1995 and 8.25% in February 1996. BancGroup's prime rate increased to
8.5% in March 1997, where it remained the rest of the year.
ACQUISITIONS
Further expansion into Florida in 1997 has resulted in improved margins due to
the lower cost of funds in this market. The institutions acquired in 1997 had an
average cost of funds of 4.47% compared to the 5.08% as originally reported by
BancGroup in 1996.
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 and rates on
interest-bearing deposits were slightly higher. These institution's rates were
adjusted to BancGroup products and rates within a short time after the mergers.
INTEREST-EARNING ASSETS
- Growth in Earning Assets
One of the most significant factors in the Company's increase in income has
been the 20.5% and 21.2% increase in average interest-earning assets in 1997
and 1996, respectively. In addition and equally significant, average net
loans increased $872 million (22%) from December 31, 1996 to December 31,
1997. Earning assets as a percentage of total average assets was 91.5% in
both 1996 and 1997.
- 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. Average mortgage loans held for sale increased from $99
million in 1995 to $135 million in 1996 and $149 million in 1997. 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 1997 all categories of loans increased. The mix of loans remained
relatively consistent. Residential real estate loans continue to be the
largest concentration at 42.4% and 42.7% of total loans at December 31, 1997
and 1996, 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
Competitive pressures on new time deposits and variable rate deposits
remained strong in 1995, 1996 and 1997. The average cost of funds remained
fairly
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
30
<PAGE> 11
constant at 5.02%, 4.99% and 5.00% in 1995, 1996 and 1997, respectively.
The primary reason for little change in the cost of funds is the increase in
concentration of Florida deposits which had lower market rates. The Florida
interest-bearing liabilities average 4.47% compared to BancGroup's consolidated
rate of 5.00%. As discussed under Liquidity and Interest Sensitivity,
BancGroup's source of funds are considered adequate to fund future loan growth.
AVERAGE VOLUME AND RATES
<TABLE>
<CAPTION>
1997 1996
------------------------------------ -----------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
(IN THOUSANDS) VOLUME INTEREST RATE VOLUME INTEREST RATE
=========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-earning assets:
Loans, net of unearned
income (1) $ 4,803,874 $ 432,046 8.99% $3,932,282 $352,810 8.97%
Mortgage loans held for sale 149,309 11,701 7.84 135,135 10,577 7.83
Investment securities and
securities available for sale:
Taxable 732,779 47,084 6.43 618,120 37,822 6.12
Nontaxable (2) 59,895 4,385 7.32 60,799 4,531 7.45
Equity securities (3) 36,318 2,795 7.70 30,412 2,225 7.32
- --------------------------------------------------------------------- -----------------------
Total investment securities 828,992 54,264 6.55% 709,331 44,578 6.28%
Federal funds sold and
securities purchased under
resale agreements 43,682 2,310 5.29 58,851 3,043 5.17
Interest-earning deposits 476 33 6.93 1,370 84 6.13
- --------------------------------------------------------------------- -----------------------
Total interest-earning assets 5,826,333 $ 500,354 8.59% 4,836,969 $411,092 8.50%
- --------------------------------------------------------------------- -----------------------
Allowance for loan losses (60,095) (49,697)
Cash and due from banks 186,187 159,584
Premises and equipment, net 117,910 86,790
Other assets 297,712 254,798
- ------------------------------------------------------ -----------
TOTAL ASSETS $ 6,368,047 $ 5,288,444
- ------------------------------------------------------ -----------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Interest-bearing liabilities:
Interest-bearing demand
deposits $ 890,488 $ 23,082 2.59% $ 754,902 $ 20,264 2.68%
Savings deposits 441,329 14,868 3.37 346,309 11,353 3.28
Time deposits 2,803,866 161,668 5.77 2,273,159 132,777 5.84
Short-term borrowings 760,125 42,588 5.60 713,496 38,746 5.43
Long-term debt 89,421 7,277 8.14 40,004 2,703 6.76
- --------------------------------------------------------------------- -----------------------
Total interest-bearing liabilities 4,985,229 $ 249,483 5.00% 4,127,870 $ 205,843 4.99%
- --------------------------------------------------------------------- -----------------------
Noninterest-bearing demand
deposits 835,360 690,971
Other liabilities 87,792 83,722
- ------------------------------------------------------ -----------
Total liabilities 5,908,381 4,902,563
Shareholders' equity 459,666 385,881
- ------------------------------------------------------ -----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $6,368,047 $ 5,288,444
=========================================================================================================================
RATE DIFFERENTIAL 3.59% 3.51%
NET INTEREST INCOME AND
NET YIELD ON INTEREST-
EARNING ASSETS (4) $ 250,871 4.31% $ 205,249 4.24%
=========================================================================================================================
<CAPTION>
1995
------------------------------------
AVERAGE AVERAGE
(IN THOUSANDS) VOLUME INTEREST RATE
==================================================================================
<S> <C> <C> <C>
ASSETS:
Interest-earning assets:
Loans, net of unearned
income (1) $3,123,407 $289,608 9.27%
Mortgage loans held for sale 98,785 7,423 7.51
Investment securities and
securities available for sale:
Taxable 618,188 36,592 5.92
Nontaxable (2) 56,825 4,240 7.46
Equity securities (3) 30,605 2,323 7.59
- -------------------------------------------------------------------
705,618 43,155 6.12%
Total investment securities
Federal funds sold and
securities purchased under
resale agreements 52,716 3,065 5.81
Interest-earning deposits 11,197 693 6.19
- -------------------------------------------------------------------
Total interest-earning assets 3,991,723 $343,944 8.62%
- -------------------------------------------------------------------
Allowance for loan losses (42,103)
Cash and due from banks 157,674
Premises and equipment, net 66,959
Other assets 198,974
- --------------------------------------------------------
TOTAL ASSETS $4,373,227
- --------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Interest-bearing liabilities:
Interest-bearing demand
deposits $ 724,689 $ 20,756 2.86%
Savings deposits 336,517 11,801 3.51
Time deposits 1,778,437 103,773 5.84
Short-term borrowings 505,801 30,328 6.00
Long-term debt 49,855 3,825 7.67
- -------------------------------------------------------------------
Total interest-bearing liabilities 3,395,299 $170,483 5.02%
- -------------------------------------------------------------------
Noninterest-bearing demand
deposits 612,105
Other liabilities 57,291
- --------------------------------------------------------
Total liabilities 4,064,695
Shareholders' equity 308,532
- --------------------------------------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $4,373,227
==============================================================================
RATE DIFFERENTIAL 3.60%
NET INTEREST INCOME AND
NET YIELD ON INTEREST-
EARNING ASSETS (4) $173,461 4.35%
==============================================================================
</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.
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
31
<PAGE> 12
ANALYSIS OF INTEREST INCREASES (DECREASES)
<TABLE>
<CAPTION>
1997 CHANGE FROM 1996 1996 CHANGE FROM 1995
--------------------------------------- --------------------------------------------
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 $ 9,262 $ 7,016 $ 1,895 $ 351 $ 1,230 $ (4) $ 1,234 $ --
Nontaxable securities (2) (146) (67) (80) 1 291 297 (5) (1)
Dividends on preferred
stocks (3) 570 432 115 23 (98) (15) (84) 1
- --------------------------------------------------------------------------------------------------------------------------
Total securities 9,686 7,381 1,930 375 1,423 278 1,145 --
Total loans (net of unearned
income) 79,236 78,200 848 188 63,202 75,000 (9,371 (2,427)
Mortgage loans held for sale 1,124 1,109 13 2 3,154 2,731 309 114
Federal funds sold and
securities purchased
under resale agreements (733) (784) 69 (18) (22) 357 (339 (40)
Interest-earning deposits (51) (55) 11 (7) (609) (608) (6) 5
- --------------------------------------------------------------------------------------------------------------------------
Total 89,262 85,851 2,871 540 67,148 77,758 (8,262) (2,348)
- --------------------------------------------------------------------------------------------------------------------------
Interest expense:
Interest-bearing demand
deposits 2,818 3,640 (696) (126) (492) 865 (1,303 (54)
Savings deposits 3,515 3,115 314 86 (448) 343 (769) (22)
Time deposits 28,891 30,999 (1,709) (399) 29,004 28,867 107 30
Short-term borrowings 3,842 2,532 1,229 81 8,418 12,453 (2,861) (1,174)
Long-term debt 4,574 3,339 552 683 (1,122) (756) (456) 90
- -------------------------------------------------------------------------------------------------------------------------
Total 43,640 43,625 (310) 325 35,360 41,772 (5,282 (1,130)
- -------------------------------------------------------------------------------------------------------------------------
Net interest income $ 45,622 $ 42,226 $ 3,181 $ 215 $ 31,788 $ 35,986 $(2,980 $(1,218)
=========================================================================================================================
</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 52% of its noninterest income from mortgage
banking related activities with the remaining 48% 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 processing
services with any of its acquisitions. One of the most important goals from 1995
through 1997 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 serviced 157,000,
132,000 and 118,000 mortgage loans with principal balances of $12.9 billion,
$10.6 billion and $9.1 billion on December 31, 1997, 1996 and 1995,
respectively. This servicing portfolio generated servicing fee and late charge
income of approximately $35.8 million, $28.1 million and $23.8 million for the
years ended December 31, 1997, 1996 and 1995, respectively. CMC, through its
wholesale and retail offices, originated $1.6 billion, $1.5 billion and $1.1
billion in residential real estate loans in 1997, 1996, and 1995, respectively.
Noninterest income from deposit accounts is significantly affected by
competitive pricing on these services and the volume of noninterest-bearing
accounts. During 1997 and 1996 average noninterest-bearing demand accounts
(excluding CMC custodial deposits) increased 25% and 9%, respectively. This
increase in volume and increases in service fee rates resulted in a 18% increase
in service charge income in 1997 and a 16% increase in 1996.
Other charges, fees, and commissions increased $776,000 or 12% in 1997 and
decreased $245,000 or 4% in 1996. 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 deliver and sell originated or acquired
mortgage loans to permanent investors. Sales of servicing and loans servicing
released by CMC resulted in income of $1,552,000, $330,000 and $988,000 for
1997, 1996 and 1995, respectively, and is the primary reason for the increase in
other income from 1996 to 1997. There were smaller 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 $1,193,000, $945,000 and $649,000 in 1997, 1996 and 1995,
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
32
<PAGE> 13
respectively. With the Jefferson acquisition in 1997, BancGroup established
trust services. Trust fees totaled $1,207,000, $1,095,000 and $1,256,000 for
1997, 1996 and 1995, respectively. Through its investment sales and trust
departments, BancGroup has established asset management services for its
customers.
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)
------------------------------------
1997 1996
YEARS ENDED DECEMBER 31 COMPARED COMPARED
----------------------------
(IN THOUSANDS) 1997 1996 1995 TO 1996 % TO 1995 %
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Noninterest income:
Mortgage servicing fees $35,805 $ 28,057 $23,787 $ 7,748 28% $ 4,270 18%
Service charges on deposit
accounts 26,109 22,085 19,085 4,024 18 3,000 16
Other charges, fees, and
commissions 7,159 6,383 6,628 776 12 (245) (4)
Other income 17,334 14,608 10,308 2,726 19 4,300 42
- ------------------------------------------------------------------ ------ --------
Subtotal 86,407 71,133 59,808 15,274 21 11,325 19
Other noninterest income items:
Securities gains, net 372 123 598 249 (475)
Gain (loss) on disposal of other
real estate and repossessions 980 (368) 121 1,348 (489)
- ------------------------------------------------------------------ ------ --------
Total noninterest income $87,759 $ 70,888 $60,527 $16,871 24% $ 10,361 17%
- ------------------------------------------------------------------ ------ --------
- -----------------------------------------------------------------------------------------------------
</TABLE>
NONINTEREST EXPENSE
The impact of the acquisitions completed from 1995 through 1997 is reflected
most noticeably in the increase in net interest income, discussed previously, as
well as the 9% increase from 1996 to 1997 in noninterest expense as shown in the
following schedule. The decrease in noninterest expense as a percent of average
assets from 3.44% in 1995 to 3.39% in 1996 to 3.14% in 1997 is a direct result
of the increased efficiency generated by this growth. The foundation for the
efficiencies gained in 1997 and 1996 is the Company's current operating
structure (regional and community banks supported by centralized backshop
operations).
Salaries and benefits increased $8.4 million or 14% in 1996 and increased
$10.7 million or 15% in 1997. These increases are primarily due to increased
staffing levels as a result of acquisitions as well as normal salary increases.
The increase in amortization of mortgage servicing rights is a direct result of
the growth in the mortgage servicing portfolio of CMC as previously discussed.
Amortization of intangible assets increased due to the closing of two
acquisitions, Shamrock and Dadeland, accounted for as purchases which required
the recording of goodwill and core deposit intangibles. Increases in legal fees
and supplies and postage are primarily due to additional branches and customers
as a result of acquisitions. In addition to the increase in expenses related to
growth, advertising and public relations expenses have increased $702,000 or 13%
and $1,169,000 or 27% in 1997 and 1996, respectively, due to 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 1997, 1996 and 1995 include approximately $5,212,000,
$11,918,000 and $1,738,000, respectively associated with various acquisition
efforts. Acquisition expenses are one time expenses associated with each
acquisition. These expenses will continue to be incurred in connection with
future acquisitions.
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 $10 million in 1995
to $13 million in 1996 and $14 million in 1997 due to changes in the mix of
loans, increases in the number of loans closed, and acquisitions.
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. These steps include
continued centralization of accounting, data processing, deposit and loan
operations functions of each acquisition into BancGroup's existing structure.
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
33
<PAGE> 14
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 points, after
adjusting for certain allowances. The assessment resulted in a pre-tax charge of
$4.5 million in 1996. This recapitalization allowed a reduction in the annual
premium rate for future years.
<TABLE>
<CAPTION>
INCREASE (DECREASE)
----------------------------------------
YEARS ENDED DECEMBER 31 1997 1996
---------------------------- COMPARED COMPARED
(IN THOUSANDS) 1997 1996 1995 TO 1996 % TO 1995 %
=================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Noninterest expense:
Salaries and employee benefits $ 81,157 $ 70,457 $ 62,054 10,700 15% $ 8,403 14%
Net occupancy expense 20,198 15,669 14,570 4,529 29 1,099 8
Furniture and equipment expense 17,084 13,417 10,116 3,667 27 3,301 33
Amortization of mortgage
servicing rights 17,069 13,627 10,261 3,442 25 3,366 33
Amortization of intangible assets 3,117 2,083 1,543 1,034 50 540 35
Acquisition expense 5,212 11,918 1,738 (6,706) (56) 10,180 586
FDIC assessment 868 2,435 4,647 (1,567) (64) (2,212) (48)
SAIF special assessment -- 4,465 -- (4,465) (100) 4,465 100
Advertising and public relations 6,168 5,466 4,297 702 13 1,169 27
Stationery, printing, and supplies 5,060 3,925 3,651 1,135 29 274 8
Telephone 4,915 4,780 3,849 135 3 931 24
Legal fees 3,363 2,846 2,511 517 18 335 13
Postage 3,315 2,701 2,288 614 23 413 18
Insurance 1,766 2,123 1,778 (357) (17) 345 19
Other 30,839 27,602 27,351 3,237 12 251 1
- ---------------------------------------------------------------------- -------- --------
Total noninterest expense $200,131 $183,514 $ 150,654 $ 16,617 9% $ 32,860 22%
- ---------------------------------------------------------------------- -------- --------
Noninterest expense, excluding
acquisition expense to Average
Assets 3.06% 3.16%* 3.41%
======================================================================
</TABLE>
* Excluding one-time SAIF special assessment
YEAR 2000 COSTS AND TECHNOLOGICAL RESTRUCTURING
Most computer software programs and processing systems, including those used
by BancGroup and its subsidiaries in their operations, have not been designed to
accommodate entries beyond the year 1999 in date fields. Failure to address the
anticipated consequences of this design deficiency could have material adverse
effects on the business and operations of any business, including BancGroup,
that relies on computers and associated technologies. In response to the
challenges of addressing such consequences in the banking industry, bank
regulatory agencies, including the Federal Reserve, BancGroup's primary
regulator, have established a Year 2000 Supervision Program and published
guidelines for implementing procedures to bring the computer software programs
and processing systems into Year 2000 compliance. In compliance with the
guidelines of the Federal Reserve, 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. Currently, BancGroup is in the
process of implementing its plans to bring all major computer systems into Year
2000 compliant status during the last quarter of 1998. Testing of all systems
and changes to the systems will begin in the last quarter of 1998 and will
continue through the full year of 1999. The major computer systems involved are:
- Colonial Bank's mainframe based systems: These systems are provided by third
party vendors of national stature. Upgrades to these systems are in progress
which will bring the systems into Year 2000 compliant status and provide
enhancements to current capability. The costs associated with these upgrades
are part of BancGroup's ongoing operating costs.
- CMC's servicing and production systems: CMC's systems are primarily in-house
systems and are currently being rewritten to Year 2000 compliant status. The
cost of the rewrites is estimated to be $1.0 million in 1998 and is
incremental to the Company's ongoing operating costs. In addition, CMC's
computer hardware is being upgraded to Year 2000 compliant status. This
upgrade will also provide additional capacity for the servicing systems as
well as an enhanced capability for production. The additional annual cost of
the mainframe upgrade (approximately $240,000) is expected to be absorbed
through growth in the servicing portfolio and increased production.
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
34
<PAGE> 15
- Branch automation operating systems: Colonial Bank's branch automation
operating systems are being converted to Windows NT from OS/2. This
conversion along with establishment of an intranet and increased capacity of
communication lines is the most cost effective method of bringing the system
to Year 2000 compliant status while allowing for more efficient flow of
information to and from the branches and providing the highest assurance of
continuing vendor support for the Company's branch automation solution. The
incremental operating cost for these upgrades (approximately $400,000
annually) is expected to be absorbed through operational efficiencies and
increased revenue. In 1998, the Company will incur a one-time pretax charge
of approximately $2 million to write-off the remaining book value of the
current branch automation equipment that is not Windows NT compatible.
BancGroup expects to incur certain additional third party costs totalling
approximately $300,000 related to assessing the status of the Company's systems
and defining its strategy to bring all systems into Year 2000 compliance. These
costs have been and will continue to be expensed as incurred and are not
significant to BancGroup's on-going operating costs. The costs to bring other
miscellaneous systems into Year 2000 compliance are not expected to be material.
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 on-going 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.
INCOME TAXES
The provision for income taxes and related items are as follows:
<TABLE>
<CAPTION>
Tax Provision
--------------------------
<S> <C>
1997 $45,910,000
1996 27,304,000
1995 25,765,000
</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 1995, 1996 and 1997.
REVIEW OF FINANCIAL CONDITION
OVERVIEW
Ending balances of selected components of the Company's balance sheet changed
from December 31, 1996 to December 31, 1997 as follows:
<TABLE>
<CAPTION>
Increase (Decrease)
(IN THOUSANDS) AMOUNT %
- --------------------------------------------------------
<S> <C> <C>
Assets:
Colonial Bank $ 1,159,420 22%
CMC 110,505 39
Other(1) (88,858) --
-------------------
Total assets 1,181,067 21
Securities available for sale (12,816) (2)
and investment securities
Mortgage loans held for sale 67,365 43
Loans, net of unearned income 960,748 23
Mortgage servicing rights 35,016 33
Deposits 956,109 22
Long-Term Debt 51,160 131
- --------------------------------------------------------
</TABLE>
(1) Includes eliminations of certain intercompany transactions between Colonial
Bank and CMC regarding intercompany debt.
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
1995 through 1997 have been:
- A consistent mix of residential mortgage loans of 42.5%, 42.7% and 42.4% of
total loans as of December 31, 1995, 1996 and 1997, respectively. 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 9.75% in 1997 excluding acquisitions.
- A 20.9% increase in 1997 in average noninterest bearing demand deposits with
4.3% attributable to CMC escrow deposits and the remainder primarily
attributable to acquisitions.
- Maintenance of high asset quality and reserve coverage of nonperforming
assets. Nonperforming assets were .71%, .81%, and .85% of related assets at
December 31, 1997, 1996 and 1995. Net charge-offs were .23%, .17%, and .18%
of average loans during 1997, 1996 and 1995. The allowance for possible loan
losses was 1.20% of loans at December 31, 1997, providing a 255% coverage of
non-performing loans (nonaccrual and renegotiated).
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
35
<PAGE> 16
- An increase in the loan to deposit ratio from 94% at December 31, 1995 to
98% at December 31, 1997. Federal Home Loan Bank borrowings continue to be a
major source of funding allowing the Company greater funding flexibility.
- Increase of $67 million in CMC's mortgage loans held for sale during 1997
due primarily to increased refinancing activities in the fourth quarter of
1997.
- Increase of $35 million in mortgage servicing rights due to the net increase
in CMC's servicing portfolio to $12.9 billion in 1997.
- Issuance of $70 million of Trust Preferred Securities during 1997.
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 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 42.4% 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 $392
million or 21.8% increase in these loans in 1997. Residential mortgage loans
are predominately adjustable rate loans and therefore have not resulted in
any material change in the Company's interest rate sensitivity.
- BancGroup also has a significant concentration in loans collateralized by
commercial real estate as shown on the following table. 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 25% 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.
Real estate values in BancGroup's lending areas in Alabama, Georgia and
Florida have not experienced significantly inflated real estate values due
to excessive inflation or speculation. BancGroup's real estate related loans
continue to perform at acceptable levels.
- CMC 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 $225,331,000, $157,966,000, and $112,203,000, at December 31, 1997,
1996, and 1995, respectively. There is minimal credit risk associated with
these loans. The increases in mortgage loans held for sale are directly
related to the fluctuation in long-term interest rates and its related
impact on mortgage loan refinancing. These loans are funded principally with
short-term borrowings, providing a relatively high margin for these funds.
- As discussed more fully in subsequent sections, management has established
policies and procedures to ensure maintenance of 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 9.75% in 1997, 16.4% in 1996, 24.1% in 1995,
and 9.6% in 1994, excluding acquisitions. Although internal loan growth
declined in 1997, the net interest margin improved due primarily to the
lower cost of funds of the acquired banks in Florida, as previously
discussed.
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
36
<PAGE> 17
<TABLE>
<CAPTION>
========================================================================================================
GROSS LOANS BY CATEGORY
DECEMBER 31
--------------------------------------------------------------
(IN THOUSANDS) 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial, financial, and agricultural $ 612,499 $ 589,418 $ 534,773 $ 463,330 $ 381,826
Real estate--commercial 1,379,845 1,033,346 888,592 788,228 659,471
Real estate--construction 622,726 460,537 378,579 246,576 179,156
Real estate--residential 2,194,003 1,801,703 1,551,051 980,916 836,909
Installment and consumer 300,456 278,600 248,943 217,499 195,696
Other 68,089 55,883 48,231 44,599 36,803
- --------------------------------------------------------------------------------------------------------
Total loans $5,177,618 $4,219,487 $3,650,169 $2,741,148 $2,289,861
========================================================================================================
</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
remaining 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
-----------------------------------------
1997 1996
-----------------------------------------
PERCENT OF PERCENT OF
LOANS TO LOANS TO
(IN THOUSANDS) AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at end of period
applicable to:
Commercial, financial,
and agricultural $11,890 11.8% $11,318 14.0%
Real estate--commercial 21,554 26.7 16,866 24.5
Real estate--construction 12,107 12.0 9,910 10.9
Real estate--residential 10,970 42.4 9,009 42.7
Installment and consumer 4,535 5.8 4,251 6.6
Other 1,126 1.3 2,089 1.3
- --------------------------------------------------------------------------
Total $62,182 100.0% $53,443 100.0%
==========================================================================
<CAPTION>
DECEMBER 31
--------------------------------------------------------------
1995 1994 1993
--------------------------------------------------------------
PERCENT OF PERCENT OF PERCENT OF
LOANS TO LOANS TO LOANS TO
(IN THOUSANDS) AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at end of period
applicable to:
Commercial, financial,
and agricultural $10,018 14.7% $ 9,385 16.9% $ 8,728 16.7%
Real estate--commercial 14,982 24.3 13,497 28.8 12,822 28.8
Real estate--construction 7,616 10.4 3,759 9.0 1,878 7.8
Real estate--residential 7,741 42.5 9,252 35.8 7,534 36.6
Installment and consumer 3,753 6.8 3,423 7.9 3,334 8.5
Other 2,807 1.3 3,211 1.6 2,558 1.6
- -------------------------------------------------------------------------------------------
Total $46,917 100.0% $42,527 100.0% $36,854 100.0%
===========================================================================================
</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 continue to focus
on shorter term maturities and floating or adjustable rate loans.
At December 31, 1997, approximately 56.1% 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
37
<PAGE> 18
LOAN MATURITY/RATE SENSITIVITY
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------------------------------------------------------------------
RATE SENSITIVITY,
LOANS MATURING
MATURING RATE SENSITIVITY OVER 1 YEAR
----------------------------------------------------------------------------------------
WITHIN 1-5 OVER
(IN THOUSANDS) 1 YEAR YEARS 5 YEARS FIXED FLOATING FIXED FLOATING
====================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial, and
agricultural $ 285,637 $ 271,159 $ 55,703 $ 300,610 $ 311,889 $ 217,344 $ 109,518
Real estate--commercial 289,393 735,047 355,405 796,235 583,610 694,336 396,116
Real estate--construction 391,616 188,649 42,461 172,172 450,554 80,309 150,801
Real estate--residential 220,794 293,732 1,679,477 688,055 1,505,948 553,201 1,420,008
Installment and consumer 89,952 196,985 13,519 278,529 21,927 206,377 4,127
Other 18,058 22,701 27,330 36,341 31,748 31,405 18,626
- --------------------------------------------------------------------------------------------------------------------
$1,295,450 $1,708,273 $2,173,895 $2,271,942 $2,905,676 $1,782,972 $2,099,196
====================================================================================================================
</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 credit review process and loan grading system, 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 overall goal and result of the aforementioned 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 1997 the ratio of net charge-offs to average loans increased to .23%
from .17% in 1996. The increase in net charge-offs in 1997 is primarily due to
the charge-off of three large credits totaling approximately $3.1 million in
North and Central Alabama. 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.
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
38
<PAGE> 19
<TABLE>
<CAPTION>
==============================================================================================================
SUMMARY OF LOAN LOSS EXPERIENCE
YEARS ENDED DECEMBER 31
------------------------------------------------------------------
(IN THOUSANDS) 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for possible loan losses--
January 1 $ 53,443 $ 46,917 $ 42,527 $ 36,854 $ 24,936
Charge-offs:
Commercial, financial, and agricultural 4,201 3,534 3,724 2,789 4,179
Real estate--commercial 2,929 2,130 1,182 1,637 938
Real estate--construction 433 1,783 44 2 957
Real estate--residential 1,601 829 460 419 571
Installment and consumer 5,448 3,335 2,915 1,905 2,173
Other 686 239 163 168 7
- --------------------------------------------------------------------------------------------------------------
Total charge-offs 15,298 11,850 8,488 6,920 8,825
- --------------------------------------------------------------------------------------------------------------
Recoveries:
Commercial, financial, and agricultural 892 1,387 1,120 1,960 906
Real estate--commercial 991 1,493 48 243 120
Real estate--construction 91 1 11 12 25
Real estate--residential 244 692 201 84 112
Installment and consumer 1,788 1,567 1,337 1,496 1,530
Other 133 73 46 43 7
- --------------------------------------------------------------------------------------------------------------
Total recoveries 4,139 5,213 2,763 3,838 2,700
- --------------------------------------------------------------------------------------------------------------
Net charge-offs 11,159 6,637 5,725 3,082 6,125
Addition to allowance charged to
operating expense 13,026 12,545 8,986 8,254 11,767
Allowance added from bank acquisitions 6,872 618 1,129 501 6,276
- --------------------------------------------------------------------------------------------------------------
Allowance for possible loan losses--
December 31 $ 62,182 $ 53,443 $ 46,917 $ 42,527 $ 36,854
==============================================================================================================
Loans (net of unearned income)
December 31 $5,176,926 $4,216,178 $3,645,727 $2,736,041 $2,289,233
Ratio of ending allowance to ending loans
(net of unearned income) 1.20% 1.27% 1.29% 1.55% 1.61%
Average loans (net of unearned income) $4,803,874 $3,932,282 $3,123,407 $2,477,768 $1,813,569
Ratio of net charge-offs to average loans
(net of unearned income) 0.23% 0.17% 0.18% 0.12% 0.34%
Allowance for loan losses as a percent
of nonperforming loans
(nonaccrual and renegotiated) 255% 223% 258% 238% 215%
===============================================================================================================
</TABLE>
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
39
<PAGE> 20
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. Loans are generally
placed on nonaccrual if full collection of principal and interest becomes
unlikely (even if all payments are current) or if the loan is delinquent in
principal or interest payments for 90 days or more, unless the loan is well
secured and in the process of collection. 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) 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Aggregate loans for which interest is
not being accrued $23,398 $22,334 $16,272 $14,348 $15,628
Aggregate loans renegotiated to
provide a reduction or deferral
of interest or principal because of
a deterioration in the financial
condition of the borrower 952 1,683 1,882 3,541 1,494
- --------------------------------------------------------------------------------------------------------
Total nonperforming loans* 24,350 24,017 18,154 17,889 17,122
Other real estate and in-substance foreclosure 11,875 9,894 12,704 17,349 24,142
Repossessions 756 338 171 81 101
- --------------------------------------------------------------------------------------------------------
Total nonperforming assets* $36,981 $34,250 $31,029 $35,319 $41,365
========================================================================================================
Aggregate loans contractually past due 90
days for which interest is being accrued $ 7,028 $ 7,682 $ 3,421 $ 4,329 $ 2,230
Total nonperforming loans as a
percent of net loans 0.47% 0.57% 0.50% 0.65% 0.75%
Total nonperforming assets as a percent of
net loans, other real estate and repossessions 0.71% 0.81% 0.85% 1.28% 1.79%
Total nonaccrual, renegotiated and 90 day
past due loans for which interest is being accrued
as a percent of total loans 0.61% 0.75% 0.59% 0.81% 0.85%
Allowance for loan loss as a percent of
nonperforming loans (nonaccrual
and renegotiated) 255% 223% 258% 238% 215%
=========================================================================================================
</TABLE>
* Total does not include loans contractually past due 90 days or more which
are still accruing interest
Fluctuations from year to year in the balances of nonperforming assets are
attributable to several factors including changing economic conditions in
various markets, nonperforming assets obtained in various acquisitions and the
disproportionate impact of larger (over $500,000) individual credits. On
December 31, 1993 BancGroup completed the acquisition of First AmFed
Corporation. With this acquisition the Company recorded $11.2 million in other
real estate, $1.6 million in nonaccrual loans, and $.5 million in 90 day past
due loans that were still accruing. The carrying value of these nonperforming
assets was adjusted at the acquisition date to their current estimated fair
values based on BancGroup's intention to dispose of them in the most expeditious
and profitable manner. Excluding these nonperforming assets acquired with First
AmFed, the Company's nonperforming asset ratio would have been 1.22% at December
31, 1993 compared to 1.79% 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 1.28%.
Management, through its loan officers, internal loan review staff and external
examinations by regulatory agencies, has identified approximately $129 million
of potential problem loans not included above. The status of these loans is
reviewed at least quarterly by loan officers and the centralized loan review
function and annually by regulatory agencies. In connection with such reviews,
collateral values are updated where considered necessary. If collateral values
are judged insufficient or other sources of repayment inadequate, the loans are
reduced to estimated recoverable amounts through increases in reserves allocated
to the loans or charge-offs. As of December 31, 1997 substantially all of these
loans are current with their existing repayment terms. Management believes that
classification of such loans as
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
40
<PAGE> 21
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 and interest income foregone on nonaccrual loans
was not significant for the years ended December 31, 1997, 1996, 1995, 1994 and
1993.
The recorded investment in impaired loans at December 31, 1997 and 1996 were
$5,020,000 and $4,303,000, respectively and these loans had a corresponding
valuation allowance of $3,071,000 and $2,673,000, respectively.
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, 1997
include:
- BancGroup's investment in U.S. Treasury securities and obligations of U.S.
government agencies is substantially all pledged against public funds
deposits or used as collateral for repurchase agreements.
- BancGroup is required to carry Federal Home Loan Bank (FHLB) Stock in
connection with its borrowings with FHLB. BancGroup is also required to
carry Federal Reserve Stock since its subsidiary bank became a member bank
of the Federal Reserve system in June 1997.
- Investment alternatives which maximize the 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. Maturities were reduced to the 2-3 year range in 1995, increased
to the 3-5 year range in 1996 and 1997.
- 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, 1997 does not include
any interest-only strips and the amount of unamortized premium on mortgage
backed securities is approximately $973,000. 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 are
established when necessary.
Investment securities are those securities which management has the ability
and intent to hold until maturity. The decline in investment securities is due
to maturities and calls in the portfolio.
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 $462 million at December 31, 1996
to $485 million at December 31, 1997.
At December 31, 1997, 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 ($49.4 million).
The changes noted above are reflected on the following table.
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
41
<PAGE> 22
SECURITIES BY CATEGORY
<TABLE>
<CAPTION>
CARRYING VALUE
AT DECEMBER 31
------------------------------
(IN THOUSANDS) 1997 1996 1995
- --------------------------------------------------------
<S> <C> <C> <C>
Investment securities:
U.S. Treasury securities
and obligations of
U.S. government
agencies $145,768 $171,176 $181,729
Mortgage-backed
securities 72,155 76,268 57,784
Obligations of state
and political
subdivisions 44,566 45,912 52,484
Other 1,741 6,786 18,944
- --------------------------------------------------------
Total $264,230 $300,142 $310,941
========================================================
<CAPTION>
CARRYING VALUE
AT DECEMBER 31
------------------------------
(IN THOUSANDS) 1997 1996 1995
- --------------------------------------------------------
<S> <C> <C> <C>
Securities available for sale:
U.S. Treasury securities
and obligations of
U.S. government
agencies $245,266 $262,342 $279,101
Mortgage-backed
securities 216,732 178,338 70,165
Obligations of state
and political
subdivisions 17,403 13,983 11,883
Other 5,917 7,559 22,864
- --------------------------------------------------------
Total $485,318 $462,222 $384,013
========================================================
</TABLE>
The carrying value of securities at December 31, 1997 mature as follows:
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
- ------------------------------------------------------------------------------------------------------------
INVESTMENT SECURITIES:
U.S. Treasury securities
and obligations of U.S.
<S> <C> <C> <C> <C> <C> <C> <C> <C>
government agencies $55,013 6.24% $ 90,255 6.44% $ -- -- $ 500 7.25%
Mortgage-backed securities 7,078 6.38 43,179 6.92 5,935 7.14% 15,963 7.53
Obligations of state and
political subdivisions (1) 6,359 4.60 19,727 5.02 14,498 5.22 3,982 5.32
Other 270 7.58 411 8.36 1,060 5.97 -- --
------------------------------------------------------------------------
Total $68,720 6.31% $153,572 6.50% $21,493 8.30% $20,445 7.83%
=============================================================================================================
Securities available for sale (2):
U.S. Treasury securities
and obligations of U.S.
government agencies $203,690 6.36%
Mortgage-backed securities 216,732 6.75
Obligations of state and political
subdivisions (1) 15,046 4.72
Other 5,157 7.24
---------------
Total $440,625 6.51%
=============================================================================================================
</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 38%. The taxable
equivalent adjustment represents the annual amounts of income from tax
exempt obligations multiplied by 145%.
(2) 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.) This category excludes all corporate common and preferred
stocks since these instruments have no maturity date.
===============================================================================
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
42
<PAGE> 23
DEPOSITS
BancGroup's deposit structure consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31 % OF TOTAL
-------------------------------------------
(IN THOUSANDS) 1997 1996 1997 1996
==============================================================================================
<S> <C> <C> <C> <C>
Noninterest-bearing demand deposits $ 898,182 $ 695,378 17.1% 16.2%
Interest-bearing demand deposits 1,078,935 786,007 20.5 18.3
Savings deposits 449,159 397,406 8.6 9.2
Certificates of deposits less than $100,000 1,856,720 1,601,774 35.3 37.3
Certificates of deposits more than $100,000 647,803 493,129 12.3 11.5
IRAs 280,033 242,932 5.3 5.6
Open time deposits 44,998 83,095 0.9 1.9
- ----------------------------------------------------------------------------------------------
Total deposits $5,255,830 $4,299,721 100.0% 100.0%
==============================================================================================
</TABLE>
The growth in deposits and the mix of deposits has been most significantly
impacted in 1996 and 1997 by the acquisitions accounted for under the purchase
method of accounting and immaterial poolings. Noninterest-bearing demand
deposits have increased $203 million (29%) from December 31, 1996 to December
31, 1997, of which 18% was due to the aforementioned acquisitions and 8% was due
to CMC escrow deposits. The remaining increase is attributable to the
development of customer relationships and sales efforts.
BancGroup has attempted through its acquisitions and branch expansion programs
to increase its market presence in Alabama and expand into growth markets in the
Southeast. The expansion was concentrated in Central and South Florida and the
Atlanta metropolitan area. 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. In 1997, BancGroup
continued to utilize its established retail banking, training and policies and
procedures departments as well as 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 establishing private banking and trust services, international
banking, an electronic banking division which includes home banking, business
banking, automatic teller, credit card and check card services. Full service
banking is offered in fourteen Wal-Mart locations with twelve located in
Alabama, one in Tennessee and one in Florida. Primarily through acquisitions,
the number of retail branches increased to 197 in 1997 from 135 in 1996.
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, 1997 and 1996, $78 million and
$138 million, respectively of CD's were outstanding under this program.
In 1997, the Company initiated a brokered money market program. Funds are
transferred daily to meet short-term funding fluctuations. The rate currently
charged for these funds is 5.5%. At December 31, 1997, these accounts totaled
$147 million.
SHORT-TERM BORROWINGS
Short-term borrowings were comprised of the following at December 31, 1997,
1996 and 1995:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1997 1996 1995
======================================================
<S> <C> <C> <C>
Federal funds purchased
and securities sold
under repurchase
agreements $252,729 $127,112 $152,505
Federal Home Loan
Bank borrowings 645,000 715,000 465,000
Other short-term
borrowings 24,040 2,017 1,141
- ------------------------------------------------------
Total $921,769 $844,129 $618,646
======================================================
</TABLE>
BancGroup has available Federal Funds lines from upstream banks including the
Federal Home Loan Bank (FHLB) totaling $285 million at December 31, 1997. 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
$1.5 billion from the FHLB on either a short or long-term basis excluding funds
available through the federal funds line.
Short-term borrowings, including FHLB borrowings, have been used to fund
short-term assets, primarily mortgage loans held for sale, and loans. FHLB
borrowings have been used during 1997 and 1996 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.
Colonial Bank has an additional $225 million available through a warehouse
line with FHLB that is collateralized by mortgage loans held for sale with no
balance outstanding at December 31, 1997.
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
43
<PAGE> 24
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 securities mature they are generally reinvested in new
securities or assets held for sale. Financing activities generally provide
funding for the growth in loans and 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 1993 through 1997 the significant changes in BancGroup's cash flows have
centered around loan growth and fluctuations in mortgage loans held for sale.
Loan growth of $483 million in 1997 and $623 million in 1996 has been one of the
principal uses of cash in both years. Mortgage loans held for sale increased in
1997, using $67 million in funds. Short-term borrowings excluding acquisitions
increased $68 million in 1997 and were used to fund loan growth. Management has
chosen to fund short-term fluctuations in the volume of mortgage loans held for
sale with short-term borrowings as opposed to increasing rate sensitive
deposits. Deposit growth excluding acquisitions of $293 million with $87 million
from the previously discussed brokered CD and money market programs 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, 1997 had $2.2
billion of residential real estate loans. These loans provide collateral for the
current $1.5 billion credit availability at the FHLB. The FHLB unused credit
capacity, $769 million, at December 31, 1997, 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 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 were 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 $3.8 million for the payment of interest on debt, $16.6 million
for principal payment on term notes (See Note 9 to the consolidated financial
statements), $15.9 million to purchase treasury stock which was subsequently
issued in the First Commerce acquisition, $55.2 million advanced to Colonial
Bank for acquisition related activities including Dadeland Bancshares and $25.0
million for the payment of dividends. The parent company's primary sources of
funds were $40.9 million in dividends received from its subsidiaries and $70
million from the issuance of the Trust Preferred Securities. 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 $125 million of retained
earnings plus certain 1998 earnings would be available for distribution to
BancGroup, from its subsidiaries, as dividends in 1998 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, 1997, BancGroup's liquidity position was adequate with loan
maturities of $1.3 billion, or 25% of the total loan portfolio, due within one
year. Securities totaling $509 million or 68% of the total portfolio also had
maturities within one year or have been classified as available for sale. As of
December 31, 1997 there were, however, no current plans to dispose of any
significant portion of these securities. In addition BancGroup has $769 million
in additional borrowing capacity at the FHLB and Colonial Bank has $225 million
available through a warehouse line with FHLB.
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
44
<PAGE> 25
BancGroup's asset/liability management policy has also established targets for
interest rate sensitivity. Changes in interest rates will necessarily lead to
changes in the net interest margin. It is ALMCO's goal to minimize volatility in
the net interest margin by taking an active role in managing the level, mix and
maturities of assets and liabilities and by analyzing and taking action to
manage mismatch and basis risk. The interest sensitivity schedule reflects a
12.8% negative gap at 12 months; therefore, BancGroup has a greater exposure to
net income if interest rates increase.
BancGroup's profitability is affected by fluctuations in interest rates. A
sudden and substantial increase in interest rates may adversely impact the
Company's earnings to the extent that the interest rates on interest earning
assets and interest bearing liabilities do not change at the same speed , to the
same extent or on the same basis. The Company monitors the impact of changes in
interest rates on its net interest income using several tools. One measure of
the Company's exposure to differential changes in interest rates between assets
and liabilities is shown in the Company's Maturity and Rate Sensitivity
Analysis. The following table measures the impact on net interest income and on
net portfolio value of an immediate change in interest rates in 100 basis point
increments. Net portfolio value is defined as the net present value of assets,
liabilities, and off-balance sheet contracts. Following are the estimated
impacts of immediate changes in interest rates at the specified levels at
December 31, 1997.
<TABLE>
<CAPTION>
PERCENTAGE CHANGE IN:
BASIS NET INTEREST NET PORTFOLIO
POINTS INCOME(1) VALUE(2)
=========================================
<S> <C> <C>
+400 (8)% (16)%
+300 (3) (9)
+200 0 (5)
+100 1 (2)
-100 (4) 2
-200 (9) 3
-300 (15) 3
-400 (25) (4)
------------------------------------------
</TABLE>
(1) The percentage change in this column represents net interest income for 12
months in a stable interest rate environment versus the Net Interest Income
in the various rate scenarios.
(2) The percentage change in this column represents net portfolio value of the
Company in a stable interest rate environment versus the net portfolio value
in the various rate scenarios.
The computation of prospective effects of hypothetical interest rate changes
are based on numerous assumptions, including relative levels of market interest
rates, loan prepayments and deposit decay rates, and should not be relied upon
as indicative of actual results. Further, the computations do not contemplate
any actions BancGroup could undertake in response to changes in interest rates.
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.)
In December 1997 BancGroup purchased $30 million of Bank-Owned Life Insurance
("BOLI"). This long-term asset represents life insurance purchased from highly
rated insurance companies on certain employees with the bank named as the
beneficiary. The Company considers these funds available for the future payment
of benefits due the employee's beneficiaries from group benefit plans.
The following table summarizes BancGroup's interest rate sensitivity at
December 31, 1997.
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
45
<PAGE> 26
<TABLE>
<CAPTION>
AT DECEMBER 31, 1997
------------------------------------------------------------------------------------
INTEREST SENSITIVE WITHIN
------------------------------------------------------------------------------------
TOTAL 0-90 91-180 181-365 1-5 OVER
(IN THOUSANDS) BALANCE DAYS DAYS DAYS YEARS 5 YEARS
============================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Rate Sensitive Assets:
Federal funds sold and resale
agreements $ 19,160 $ 19,160 $ -- $ -- $ -- $ --
Investment securities 264,230 32,436 23,916 22,807 143,502 41,569
Securities available for sale 485,318 187,796 19,190 15,589 163,676 99,067
Mortgage loans held for sale 225,331 225,331 -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
Loans, net of unearned income 5,176,926 1,817,989 258,723 500,770 1,992,268 607,176
Allowance for possible loan losses (62,182) (21,837) (3,108) (6,015) (23,930) (7,292)
- ----------------------------------------------------------------------------------------------------------------------------
Net loans 5,114,744 1,796,152 255,615 494,755 1,968,338 599,884
Nonearning assets 742,045 -- -- -- -- 742,045
============================================================================================================================
Total Assets $ 6,850,828 $ 2,260,875 $ 298,721 $ 533,151 $ 2,275,516 $ 1,482,565
============================================================================================================================
Rate Sensitive Liabilities:
Interest-bearing demand deposits $ 1,078,935 $ 689,474 $ -- $ -- $ -- $ 389,461
Savings deposits 449,159 240,086 -- 424 -- 208,649
Certificates of deposits less than
$100,000 1,856,720 490,441 375,846 606,091 383,505 837
Certificates of deposits more than
$100,000 647,803 244,544 143,872 153,461 105,926 --
IRAs 280,033 76,127 46,851 45,158 110,963 934
Open time deposits 44,998 43,045 116 315 1,522 --
Short-term borrowings 921,769 726,769 60,00 10,000 125,000 --
Long-term debt 90,252 256 241 298 682 88,775
Noncosting liabilities & equity 1,481,159 -- -- -- -- 1,556,162
============================================================================================================================
Total Liabilities & Equity $ 6,850,828 $ 2,510,742 $ 626,926 $ 815,747 $ 727,598 $ 2,169,815
============================================================================================================================
Gap $ -- $ (249,867) $(328,205) $(282,596) $ 1,547,918 $ (687,250)
============================================================================================================================
Cumulative Gap $ -- $ (249,867) $(578,072) $(869,668) $ 687,250 $ --
============================================================================================================================
</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 $848 million with a corresponding cumulative gap at one year of
negative $1.5 billion.
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 1997 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
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
46
<PAGE> 27
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, 1997 are stated below:
<TABLE>
<CAPTION>
<S> <C>
Capital (thousands):
Tier I Capital:
Shareholders' equity
(excluding unrealized gain
on securities available
for sale and intangibles)
plus Trust Preferred Securities $ 495,490
Tier II Capital:
Allowable loan loss reserve 62,182
Subordinated debt 6,088
----------
Total Capital $ 563,760
Risk Adjusted Assets (thousands) $4,987,690
Total Assets (thousands) $6,850,828
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995
===========================================================
<S> <C> <C> <C>
Tier I leverage ratio 7.47% 6.77% 7.10%
Risk Adjusted Capital
Ratios:
Tier I Capital Ratio 9.93% 9.20% 9.48%
Total Capital Ratio 11.30% 10.66% 11.27%
</TABLE>
BancGroup has increased capital gradually through normal earnings retention as
well as through stock registrations to capitalize acquisitions.
In January 1997, BancGroup issued $70 million of Trust Preferred Securities
which qualify as Tier 1 Capital.
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, 1997, these deposits totaled $18.2 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. 128, Earnings Per Share, on December 31, 1997. (See
Note 1 to the consolidated financial statements.)
In June 1997, the Financial Accounting Standards Board issued 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 components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements.
This statement is effective for fiscal years beginning after December 15,
1997. Although earlier application is permitted, BancGroup has chosen not to
adopt early. Reclassification of financial statements for earlier periods
provided for comparative purposes will be required.
In June 1997, the Financial Accounting Standards Board also issued 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. This statement requires the reporting of
financial and descriptive information about an enterprise's reportable operating
segments.
This statement is effective for financial statements for periods beginning
after December 15, 1997. In the initial year of application, comparative
information for earlier years is to be restated. Under SFAS No. 131, BancGroup
will report two segments, commercial and mortgage banking.
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
47
<PAGE> 28
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.
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
48
<PAGE> 29
Colonial BancGroup, Inc.
REPORT OF INDEPENDENT ACCOUNTANTS 97
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, 1997 and 1996, 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,
1997. 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, 1997 and 1996, the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Montgomery, Alabama
February 27, 1998
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
49
<PAGE> 30
Colonial BancGroup, Inc.
CONSOLIDATED STATEMENTS OF CONDITION 97
<TABLE>
<CAPTION>
December 31, 1997 and 1996
(Dollars in thousands)
ASSETS 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and due from banks $ 254,252 $ 231,787
Interest-bearing deposits in banks 19,160 29,413
Securities available for sale (Note 3) 485,318 462,222
Investment securities (market value: 1997, $266,336; 1996, $302,295) (Note 3) 264,230 300,142
Mortgage loans held for sale 225,331 157,966
Loans, net of unearned income (Note 4) 5,176,926 4,216,178
Less:
Allowance for possible loan losses (Note 5) (62,182) (53,443)
- -------------------------------------------------------------------------------------------------------------------------------
Loans, net 5,114,744 4,162,735
Premises and equipment, net (Note 7) 129,588 93,997
Excess of cost over tangible and identified intangible assets acquired, net 67,128 29,773
Mortgage servicing rights 141,800 106,784
Other real estate owned 12,631 10,232
Accrued interest and other assets 136,646 84,710
- ------------------------------------------------------------------------------------------------------------------------------
Total $6,850,828 $ 5,669,761
==============================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------------------
Deposits:
Noninterest-bearing demand $ 898,182 $ 695,378
Interest-bearing demand 1,078,935 786,007
Savings 449,159 397,406
Time 2,829,554 2,420,930
- ------------------------------------------------------------------------------------------------------------------------------
Total deposits 5,255,830 4,299,721
FHLB short-term borrowings (Note 8) 645,000 715,000
Other short-term borrowings (Note 8) 276,769 129,129
Subordinated debt (Note 9) 6,088 8,612
Trust preferred securities (Note 9) 70,000 --
Other long-term debt (Note 9) 14,164 30,480
Other liabilities 88,723 84,111
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities 6,356,574 5,267,053
- ------------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (Notes 6, 12, 15)
Shareholders' equity: (Notes 2, 10)
Common Stock, $2.50 par value; 100,000,000 shares authorized;
issued and outstanding; 42,545,425 and 39,145,685 in 1997 and 1996 106,364 97,864
Additional paid in capital 193,619 168,064
Retained earnings 194,317 137,956
Unearned compensation (1,682) (1,603)
Unrealized gain on securities available for sale, net of taxes 1,636 427
- ------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 494,254 402,708
- ------------------------------------------------------------------------------------------------------------------------------
Total $6,850,828 $ 5,669,761
==============================================================================================================================
</TABLE>
See notes to consolidated financial statements.
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
50
<PAGE> 31
Colonial BancGroup, Inc.
CONSOLIDATED STATEMENTS OF INCOME 97
<TABLE>
<CAPTION>
For the years ended
December 31, 1997, 1996 and 1995
(In thousands, except per share amounts)
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $442,741 $362,231 $296,422
Interest and dividends on securities:
Taxable 47,119 37,861 36,397
Nontaxable 3,017 3,119 3,117
Dividends 2,767 2,194 2,197
Interest on federal funds sold and securities purchased under
resale agreements 1,625 2,517 2,949
Other interest 718 610 744
- ---------------------------------------------------------------------------------------------------------------------
Total interest income 497,987 408,532 341,826
- ---------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on deposits 199,623 164,394 136,331
Interest on short-term borrowings 42,588 38,746 30,409
Interest on long-term debt 7,277 2,703 3,743
- ---------------------------------------------------------------------------------------------------------------------
Total interest expense 249,488 205,843 170,483
- ---------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 248,499 202,689 171,343
Provision for possible loan losses (Notes 1, 5) 13,026 12,545 8,986
- ---------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE LOAN LOSSES 235,473 190,144 162,357
- ---------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME:
Mortgage servicing fees 35,805 28,057 23,787
Service charges on deposit accounts 26,109 22,085 19,085
Securities gains, net (Note 3) 372 123 598
Other charges, fees and commissions 7,159 6,383 6,628
Other income 18,314 14,240 10,429
- ---------------------------------------------------------------------------------------------------------------------
Total noninterest income 87,759 70,888 60,527
- ---------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE:
Salaries and employee benefits 81,157 70,457 62,054
Occupancy expense of bank premises, net 20,198 15,669 14,570
Furniture and equipment expenses 17,084 13,417 10,116
Amortization of mortgage servicing rights 17,069 13,627 10,261
Amortization of intangible assets 3,117 2,083 1,543
SAIF special assessment -- 4,465 --
Acquisition expense 5,212 11,918 1,738
Other expense (Note 17) 56,294 51,878 50,372
- ---------------------------------------------------------------------------------------------------------------------
Total noninterest expense 200,131 183,514 150,654
- ---------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 123,101 77,518 72,230
Applicable income taxes (Note 18) 45,910 27,304 25,765
- ---------------------------------------------------------------------------------------------------------------------
Net Income $ 77,191 $ 50,214 $ 46,465
=====================================================================================================================
EARNINGS PER SHARE (NOTE 19):
Basic $ 1.84 $ 1.30 $ 1.30
Diluted 1.78 1.25 1.21
AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic 42,034 38,615 35,696
Diluted 43,436 40,385 39,421
=====================================================================================================================
</TABLE>
See notes to consolidated financial statements.
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
51
<PAGE> 32
Colonial BancGroup, Inc.
CONSOLIDATED STATEMENTS OF CHANGES 97
IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
For the years ended
December 31, 1997, 1996 and 1995
(In thousands, except per share amounts)
CLASS A CLASS B ADDITIONAL
COMMON STOCK COMMON STOCK COMMON STOCK PAID IN RETAINED UNEARNED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS COMPENSATION
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995 33,450,262 $83,626 1,270,176 $3,175 $128,156 $ 73,746 $ (840)
- ----------------------------------------------------------------------------------------------------------------------------------
Shares issued under:
Directors Plan 1,716 4 32,332 $ 81 241
Stock Option Plans 13,182 33 224,396 562 1,165
Dividend Reinvestment 53,516 134 448
Stock Bonus Plan 50,000 125 697 (822)
Employee Stock Purchase
Plan 536 1 7,534 19 90
Issuance of common stock by
a pooled bank prior
to merger 156,790 392 43,270 108 1,477 (1,360) (187)
Conversion of Class A Common
Stock and Class B Common
Stock to Common Stock (33,622,486) (84,056) (1,270,176) (3,175) 34,892,662 87,231
Issuance of shares for
business combinations 2,089,994 5,225 22,591
Net income 46,465
Cash dividends: (Class A,
$0.1125 per share; Class
B, $0.0625 per share;
Common, $0.3375 per share) (10,521)
Cash dividends by pooled bank
prior to merger (1,808)
Conversion of 7 1/2%
convertible subordinated
debentures 23,418 59 269
Conversion of 12 3/4%
convertible subordinated
debentures 1,120 2 8
Changes in unrealized gain
(loss) on securities
available for sale, net
of taxes
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 37,418,242 93,546 155,142 106,522 (1,849)
- ----------------------------------------------------------------------------------------------------------------------------------
Shares issued under:
Directors Plan 31,710 79 249
Stock Option Plans 499,079 1,248 1,706
Dividend Reinvestment 60,136 150 897
Stock Bonus Plan 48,340 121 833 246
Employee Stock Purchase
Plan 10,264 26 154
Issuance of shares for
business combinations 154,596 386 2,214
Net income 50,214
Cash dividends: ($.054 per
share) (16,175)
Cash dividends by pooled bank
prior to merger (2,398)
Treasury Stock activity by
pooled bank prior to merger (58,206) (146) (485) (207)
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
(loss) on securities
available for sale, net
of taxes
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 39,145,685 97,864 168,064 137,956 (1,603)
- ----------------------------------------------------------------------------------------------------------------------------------
Issuance of shares for
immaterial poolings:
Tomoka Bancorporation 661,992 1,655 1,628 3,043
Great Southern Bancorp 927,811 2,320 5,287 2,514
First Independence Bank
of Florida 503,932 1,260 5,634 (1,430)
Shares issued under:
Directors Plan 31,082 78 425
Stock Option Plans 669,889 1,674 3,333
Dividend Reinvestment 42,199 105 843
Stock Bonus Plan 23,012 58 443 (79)
Employee Stock Purchase
Plan 16,392 41 385
Purchase of treasury stock
for issuance in a business
combination (671,165) (1,678) (14,209)
Issuance of shares for
business combinations 1,016,261 2,541 19,717
Net income 77,191
Cash dividends: ($0.60 per
share) (24,957)
Conversion of 7 1/2%
convertible subordinated
debentures 163,164 408 1,877
Conversion of 7% convertible
subordinated debentures 15,171 38 192
Change in unrealized gain on
securities available for
sale, net of taxes
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 42,545,425 $106,364 $193,619 $194,317 $(1,682)
==================================================================================================================================
<CAPTION>
Unrealized
Gain (Loss) on Total
Available Shareholders'
For Sale Equity
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance, January 1, 1995 $ (12,546) $275,317
- --------------------------------------------------------------------------------------------------
Shares issued under:
Directors Plan 326
Stock Option Plans 1,760
Dividend Reinvestment 582
Stock Bonus Plan --
Employee Stock Purchase
Plan 110
Issuance of common stock by
a pooled bank prior to
merger 430
Conversion of Class A Common
Stock and Class B Common
Stock to Common Stock
Issuance of shares for
business combinations 27,816
Net income 46,465
Cash dividends: (Class A,
$0.1125 per share; Class
B, $0.0625 per share;
Common, $0.3375 per share) (10,521)
Cash dividends by pooled bank
prior to merger (1,808)
Conversion of 7 1/2%
convertible subordinated
debentures 328
Conversion of 12 3/4%
convertible subordinated
debentures 10
Changes in unrealized gain
(loss) on securities
available for sale, net
of taxes 11,916 11,916
- --------------------------------------------------------------------------------------------------
Balance, December 31, 1995 (630) 352,731
- --------------------------------------------------------------------------------------------------
Shares issued under:
Directors Plan 328
Stock Option Plans 2,954
Dividend Reinvestment 1,047
Stock Bonus Plan 1,200
Employee Stock Purchase
Plan 180
Issuance of shares for
business combinations 2,600
Net income 50,214
Cash dividends: ($.054
per share) (16,175)
Cash dividends by pooled
bank prior to merger (2,398)
Treasury Stock activity by
pooled bank prior to merger 838)
Conversion of 7 1/2%
convertible subordinated
debentures 2,448
Conversion of 12 3/4%
convertible subordinated
debentures 7,360
Change in unrealized gain
(loss) on securities
available for sale, net
of taxes 1,057 1,057
- --------------------------------------------------------------------------------------------------
Balance, December 31, 1996 427 402,708
- --------------------------------------------------------------------------------------------------
Issuance of shares for
immaterial poolings:
Tomoka Bancorporation (23) 6,303
Great Southern Bancorp (25) 10,096
First Independence Bank
of Florida (25) 5,439
Shares issued under:
Directors Plan 503
Stock Option Plans 5,007
Dividend Reinvestment 948
Stock Bonus Plan 422
Employee Stock Purchase
Plan 426
Purchase of treasury stock
for issuance in a business
combination (15,887)
Issuance of shares for
business combinations 22,258
Net income 77,191
Cash dividends: ($0.60
per share) (24,957)
Conversion of 7 1/2%
convertible subordinated
debentures 2,285
Conversion of 7% convertible
subordinated debentures 230
Change in unrealized gain on
securities available for
sale, net of taxes 1,282 1,282
- --------------------------------------------------------------------------------------------------
Balance, December 31, 1997 $1,636 $494,254
==================================================================================================
</TABLE>
See notes to consolidated financial statements.
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
52
<PAGE> 33
Colonial BancGroup, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS 97
<TABLE>
<CAPTION>
For the years ended
December 31, 1997, 1996, and 1995
(In thousands)
1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 77,191 $ 50,214 $ 46,465
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation, amortization and accretion 20,185 14,792 14,072
Amortization of mortgage servicing rights 17,069 13,627 10,261
Provision for possible loan losses 13,026 12,545 8,986
Deferred income taxes 1,320 (1,398) (1,960)
Gain on sale of securities, net (372) (123) (598)
(Gain) loss on sale of other assets (1,318) (534) 38
Additions to mortgage servicing rights (52,085) (32,264) (32,139)
Net increase in mortgage loans held for sale (67,365) (45,763) (50,647)
Increase in interest receivable (11,546) (1,837) (9,249)
(Increase) decrease in prepaids and other receivables (756) 426 4,693
Increase (decrease) in accrued expenses and accounts payable 563 (448) (4,714)
Increase in accrued income taxes 1,284 136 3,086
Increase in interest payable 8,665 3,948 11,395
Other, net (9,070) 8,702 (12,664)
- -------------------------------------------------------------------------------------------------------------------
Total adjustments (80,400) (28,191) (59,440)
- -------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by operating activities (3,209) 22,023 (12,975)
- -------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from maturities of securities available for sale 105,846 97,025 72,187
Proceeds from sales of securities available for sale 36,476 61,714 86,458
Purchase of securities available for sale (59,071) (153,843) (190,306)
Proceeds from maturities of investment securities 198,874 149,166 105,531
Purchases of investment securities (133,157) (144,527) (55,186)
Net decrease in short-term investment securities -- 5,300 200
Net increase in loans (482,647) (622,502) (677,752)
Purchase of bank owned life insurance (30,000) -- --
Cash and cash equivalents received in bank acquisitions, net (Note 2) 28,242 1,437 23,201
Cash and cash equivalents received in the purchase
of assets and assumption of liabilities (Note 2) -- 7,028 --
Capital expenditures (35,742) (23,249) (12,382)
Proceeds from sale of other real estate owned 2,784 10,324 10,987
Purchase of treasury stock for issuance in a business acquisition (15,887) -- --
Other, net 3,258 111 2,474
- -------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (381,024) (612,016) (634,588)
- -------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase in demand, savings and time deposits 292,605 381,551 553,600
Net increase in federal funds purchased,
repurchase agreements and other short-term borrowings 68,512 226,060 193,341
Proceeds from issuance of long-term debt 70,000 6,394 12,092
Repayment of long-term debt (16,996) (5,064) (55,526)
Proceeds from issuance of common stock 7,281 3,318 2,406
Proceeds from issuance of subordinated debt -- -- 1,425
Dividends paid (24,957) (18,573) (12,329)
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 396,445 593,686 695,009
- -------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 12,212 3,693 47,446
Cash and cash equivalents at beginning of year 261,200 257,507 210,061
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year (Note 1) $273,412 $ 261,200 $257,507
===================================================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $241,389 $ 196,316 $157,996
Income taxes 43,905 29,637 23,202
Non-cash transactions:
Transfer of loans to other real estate $ 14,458 $ 8,770 $ 6,013
Origination of loans from the sale of other real estate 612 763 830
Securitization of mortgage loans -- 87,641 --
Transfer of investment securities to securities available for sale -- -- 60,421
Conversion of subordinated debentures to common stock 2,515 9,808 428
Assets acquired in business combinations 554,803 77,923 307,425
Liabilities assumed in business combinations (526,741) 76,760 302,810
===================================================================================================================
</TABLE>
See notes to consolidated financial statements.
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
53
<PAGE> 34
Colonial BancGroup, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 97
For the years ended
December 31, 1997, 1996 and 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING
AND REPORTING POLICIES
The Colonial BancGroup, Inc. ("BancGroup") and its subsidiaries operate
predominantly in the domestic commercial and mortgage banking industry. The
accounting and reporting policies of BancGroup and its subsidiaries conform to
generally accepted accounting principles and to general practice within the
banking industry. The following summarizes the most significant of these
policies.
BASIS OF PRESENTATION--The consolidated financial statements of BancGroup
for 1996 and 1995 have been previously restated to give retroactive effect to
the April 1997 combination with Fort Brooke Bancorporation ("Fort Brooke"), the
January 1997 combinations with Jefferson Bancorp, Inc. ("Jefferson") and D/W
Bankshares, Inc. ("Bankshares") as well as the July 1996 combinations with
Commercial Bancorp of Georgia, Inc., ("Commercial") and Southern Banking
Corporation ("Southern") 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--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--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.
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, 1997 and 1996 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--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
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
54
<PAGE> 35
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 allowance for loan losses is established through charges to earnings
in the form of a provision for loan losses. Increases and decreases in the
allowance due to changes in the measurement of the impaired loans are included
in the provision for loan losses. Loans continue to be classified as impaired
unless they are brought fully current and the collection of scheduled interest
and principal is considered probable. When a loan or portion of a loan is
determined to be uncollectible, the portion deemed uncollectible is charged
against the allowance and subsequent recoveries, if any, are credited to the
allowance.
Management's periodic evaluation of the adequacy of the allowance is based
on the Bank's past loan loss experience, known and inherent risks in the
portfolio, adverse situations that may affect the borrowers' ability to repay,
estimated value of any underlying collateral, and 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 chargeoffs have been fully recovered. Interest income recognized on a
cash basis was immaterial for the years ended December 31, 1997, 1996 and 1995.
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-five years for the excess of cost over tangible and
identified intangible assets acquired using the straight-line method or an
accelerated method, as applicable, and ten years for deposit core base
intangibles using an accelerated 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--The total cost of mortgage loans held for sale
is allocated to mortgage servicing rights and mortgage loans held for sale
(without mortgage servicing rights) based on their relative fair values. The
aggregate basis is used to determine the lower of cost or market value when
capitalizing mortgage servicing rights.
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
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
55
<PAGE> 36
are evaluated for impairment based on their fair values categorized by coupon
rate. 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.
The servicing portfolio is geographically disbursed throughout the United
States with a concentration in the southern states. The mortgage servicing
rights at December 31, 1997 and 1996 are stated net of accumulated amortization
of approximately $55 million and $38 million, 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 reviews long-lived assets and certain
identifiable intangibles 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. Long-lived assets and certain
intangibles to be disposed of are reported at the lower of carrying amount or
fair value less cost to sell.
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.
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 its stock option plans under the provisions in APB Opinion 25.
EARNINGS PER SHARE--BancGroup adopted SFAS No. 128, "Earnings Per Share"
on December 31, 1997. This statement establishes standards for computing and
presenting earnings per share (EPS) and applies to entities with publicly held
common stock or potential common stock. This statement replaces the presentation
of primary EPS with a presentation of basic EPS and requires dual presentation
of basic and diluted EPS on the face of the income statement for all entities
with complex capital structures and requires a reconciliation of the numerator
and denominator of the basic EPS computation to the numerator and denominator of
the diluted EPS computation. All prior year earnings per share data has been
restated to reflect the presentation required under SFAS No. 128 as well as 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.
RECLASSIFICATIONS--Certain reclassifications have been made to the 1996
financial statements to conform to the 1997 presentation.
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 utilizing 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.
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.
In June 1997, the Financial Accounting Standards Board issued 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 components of comprehensive income be reported in a financial
statement that is dis-
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
56
<PAGE> 37
played with the same prominence as other financial statements.
This statement is effective for fiscal years beginning after December
15, 1997. Although earlier application is permitted, BancGroup has chosen not to
adopt early. Reclassification of financial statements for earlier periods
provided for comparative purposes is required.
In June 1997, the Financial Accounting Standards Board also issued 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. This statement requires the reporting of
financial and descriptive information about an enterprise's reportable operating
segments.
This statement is effective for financial statements for periods beginning
after December 15, 1997. In the initial year of application, comparative
information for earlier years is to be restated.
Pursuant to SFAS No. 131, BancGroup will report two segments: commercial
banking and mortgage banking.
2. BUSINESS COMBINATIONS
BancGroup recently completed the following business combinations with
other financial institutions. The balances reflected are as of the date of
consummation.
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
ACCOUNTING DATE BANCGROUP CASH TOTAL
FINANCIAL INSTITUTIONS TREATMENT CONSUMMATED SHARES PAID (2) ASSETS
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1995
Colonial Mortgage Company (AL) Pooling of interests 02/17/95 4,545,454 $ 71,000
Brundidge Banking Company (AL) Purchase 03/31/95 532,868 56,609
Mt. Vernon Financial Corp. (GA) Purchase 10/20/95 1,043,440 217,967
Farmers & Merchants Bank (AL) Purchase 11/03/95 513,686 $ 3,000 56,050
- -----------------------------------------------------------------------------------------------------------------------------
1996*
Commercial Bancorp of Georgia, Inc. (GA) Pooling of interests 07/03/96 2,306,460 232,555
Southern Banking Corporation (FL) Pooling of interests 07/03/96 2,858,494 232,461
Dothan Federal Savings Bank (AL) Purchase 07/08/96 154,690 2,600 48,366
- -----------------------------------------------------------------------------------------------------------------------------
1997
Jefferson Bancorp, Inc. (FL) Pooling of interests 01/03/97 3,854,952 472,732
Tomoka Bancorp, Inc. (FL) Pooling of interests(1) 01/03/97 661,992 76,700
First Family Financial Corp. (FL) Purchase 01/09/97 330,564 6,492 167,300
D/W Bankshares, Inc. (GA) Pooling of interests 01/31/97 1,016,548 138,686
Shamrock Holdings, Inc. (AL) Purchase 03/05/97 11,813 54,500
Fort Brooke Bancorporation (FL) Pooling of interests 04/22/97 1,599,973 208,800
Great Southern Bancorp (FL) Pooling of interests(1) 07/01/97 927,811 121,009
First Commerce Banks of Florida, Inc. (FL) Purchase 07/01/97 685,695 97,093
Dadeland BancShares, Inc. (FL) Purchase 09/15/97 38,000 169,946
First Independence Bank of Florida (FL) Pooling of interests(1) 10/01/97 503,932 65,048
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Due to the immaterial impact on BancGroup's Financial Statements, prior
years have not been restated to include these poolings of interests.
(2) Does not include immaterial amounts paid in lieu of fractional shares.
* 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.
In addition to the combinations shown above, BancGroup has closed or has
plans to close the following combinations since December 31, 1997. The balances
reflected are as of December 31, 1997. The following business combinations have
not been reflected in the financial statements at December 31, 1997.
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
ACCOUNTING DATE BANCGROUP OTHER TOTAL
FINANCIAL INSTITUTIONS TREATMENT CONSUMMATED SHARES CONSIDERATION(1) ASSETS
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
United American Holding Corp. (FL) Pooling of interests 02/02/98 2,113,206 $275,263
ASB Bancshares, Inc. (AL) Purchase 02/05/98 467,257 $7,725(2) 158,656
First Central Bank (FL) Pooling of interests 02/11/98 688,684 62,897
South Florida Banking Corp. (FL) Pooling of interests 02/12/98 1,932,229 255,769
Commercial Bank of Nevada (NV) Pooling of interests Pending 842,157 120,108
</TABLE>
(1) Does not include immaterial amounts paid in lieu of fractional shares.
(2) Represents subordinated debentures.
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
57
<PAGE> 38
The combination with Colonial Mortgage Company ("CMC") in 1995 was
accounted for using a method of accounting similar to a pooling of interests.
The 1996 combinations with Southern and Commercial and the 1997 combinations
with Jefferson, Bankshares and Fort Brooke 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
these combinations had occurred at the beginning of the earliest period
presented. The 1997 combinations with Tomoka Bancorp, Inc., Great Southern
Bancorp and First Independence Bank of Florida were accounted for using the
pooling-of-interests method, however, due to immateriality, the prior year
financial statements were not restated. 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.
The proforma impact of the purchase method business combinations on BancGroup's
financial statements for periods prior to acquisition is not significant.
The following 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 ORIGINALLY EFFECT OF CURRENTLY
(IN THOUSANDS) REPORTED POOLINGS REPORTED
=====================================================================
<S> <C> <C> <C>
1996:
Net interest income $169,678 $33,011 $202,689
Noninterest income 65,982 4,906 70,888
Net income 53,608 (3,394) 50,214
1995:
Net interest income 118,442 52,901 171,343
Noninterest income 45,982 14,545 60,527
Net income 38,794 7,671 46,465
=====================================================================
</TABLE>
3. SECURITIES
The carrying and market values of investment securities are summarized as
follows:
<TABLE>
<CAPTION>
INVESTMENT SECURITIES
1997 1996
----------------------------------------------------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED MARKET Amortized Unrealized Unrealized Market
(IN THOUSANDS) 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 $145,768 $ 883 $ (67) $146,584 $171,176 $1,699 $ (140) $172,735
Mortgage-backed securities 72,155 754 (634) 72,275 76,268 616 (883) 76,001
Obligations of state and
political subdivisions 44,566 1,311 (9) 45,868 45,912 1,056 (55) 46,913
Other 1,741 115 (17) 1,609 6,786 74 (214) 6,646
- ---------------------------------------------------------------------------------------------------------------------------
Total $264,230 $2,833 $(727) $266,336 $300,142 $3,445 $(1,292) $302,295
===========================================================================================================================
</TABLE>
The carrying and market values of securities available for sale are
summarized as follows:
<TABLE>
<CAPTION>
SECURITIES AVAILABLE FOR SALE
1997 1996
----------------------------------------------------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED MARKET Amortized Unrealized Unrealized Market
(IN THOUSANDS) 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 $244,154 $1,581 $ (469) $245,266 $262,775 $1,208 $(1,641) $262,342
Mortgage-backed
securities 216,316 1,751 (1,335) 216,732 177,999 1,619 (1,280) 178,338
Obligations of state and
political subdivisions 17,045 362 (4) 17,403 13,910 166 (93) 13,983
Other 4,957 961 (1) 5,917 6,895 907 (243) 7,559
- ---------------------------------------------------------------------------------------------------------------------------
Total $482,472 $4,655 $(1,809) $485,318 $461,579 $3,900 $(3,257) $462,222
===========================================================================================================================
</TABLE>
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
58
<PAGE> 39
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 securities available for sale is $42,686,000 and
$39,011,000 in Federal Home Loan Bank stock at December 31, 1997 and 1996,
respectively.
Securities with a carrying value of approximately $589,843,000 and
$529,423,000 at December 31, 1997 and 1996 respectively, were pledged for
various purposes as required or permitted by law.
Gross gains of $413,000, $239,000 and $764,000 and gross losses of
$41,000, $116,000 and $166,000 were realized on sales of securities for 1997,
1996, and 1995, respectively. The amortized cost and market value of debt
securities at December 31, 1997, 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 $ 61,642 $ 61,843 $ 25,032 $ 25,081
Due after one year
through five years 110,393 111,223 129,565 130,130
Due after five years
through ten years 15,558 16,190 49,173 49,817
Due after ten years 4,482 4,805 18,494 18,865
- -------------------------------------------------------------------------
192,075 194,061 222,264 223,893
Mortgage-backed
securities 72,155 72,275 216,316 216,732
- -------------------------------------------------------------------------
Total $264,230 $266,336 $438,580 $440,625
=========================================================================
</TABLE>
4. LOANS
A summary of loans follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1997 1996
===================================================================
<S> <C> <C>
Commercial, financial,
and agricultural $ 612,499 $ 589,418
Real estate--commercial 1,379,845 1,033,346
Real estate--construction 622,726 460,537
Real estate--mortgage 2,194,003 1,801,703
Installment and consumer 300,456 278,600
Other 68,089 55,883
- ------------------------------------------------------------------
Subtotal 5,177,618 4,219,487
Unearned income (692) (3,309)
- ------------------------------------------------------------------
Total $5,176,926 $4,216,178
==================================================================
</TABLE>
BancGroup's lending is concentrated throughout Alabama, southern Tennessee,
central Georgia and central, southwest 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 commercial real estate and residential 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, 1997.
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, 1997 are summarized as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
Balance Balance
1/1/97 Additions Repayments 12/31/97
- -------------------------------------------------------------------
<S> <C> <C> <C>
$46,634 41,683 54,133 $34,184
- -------------------------------------------------------------------
</TABLE>
At December 31, 1997 and 1996, the recorded investment in loans for which
impairment has been recognized totaled $5,020,000 and $4,303,000, respectively,
and these loans had a corresponding valuation allowance of $3,071,000 and
$2,673,000, respectively. The impaired loans were measured for impairment based
primarily on the value of underlying collateral. For the years ended December
31, 1997 and 1996, the average recorded investment in impaired loans was
approximately $3,592,000 and $3,080,000. BancGroup recognized approximately
$323,000 and $276,000 of interest on impaired loans during the portion of the
year that they were impaired in 1997 and 1996, respectively.
BancGroup uses several factors in determining if a loan is impaired.
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, collateral value and borrower's operating
factors such as cash flows, operating income or loss, etc.
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
59
<PAGE> 40
5. ALLOWANCE FOR POSSIBLE LOAN LOSSES
An analysis of the allowance for possible loan losses is as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1997 1996 1995
=================================================================
<S> <C> <C> <C>
Balance, January 1 $53,443 $46,917 $42,527
Addition due to acquisitions 6,872 618 1,129
Provision charged to income 13,026 12,545 8,986
Loans charged off (15,298) (11,850) (8,488)
Recoveries 4,139 5,213 2,763
- -----------------------------------------------------------------
Balance, December 31 $62,182 $53,443 $46,917
=================================================================
</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, 1997 and
1996 are as follows:
<TABLE>
<CAPTION>
CONTRACT AMOUNT
-----------------------
(IN THOUSANDS) 1997 1996
- -----------------------------------------------------------------
<S> <C> <C>
Financial instruments whose
contract amounts represent
credit risk:
Loan commitments $1,230,459 $726,120
Standby letters of credit 52,925 48,851
Mortgage sales commitments 121,911 193,970
</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 $120,762,000 and $194,858,000
at December 31, 1997 and 1996, respectively.
7. PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1997 1996
=================================================================
<S> <C> <C>
Land $ 27,088 $ 22,840
Bank premises 81,871 64,884
Equipment 82,952 66,227
Leasehold improvements 16,959 14,585
Construction in progress 12,126 2,554
Automobiles 682 404
- -----------------------------------------------------------------
Total 221,678 171,494
Less accumulated depreciation
and amortization 92,090 77,497
- -----------------------------------------------------------------
Premises and equipment, net $129,588 $ 93,997
=================================================================
</TABLE>
8. SHORT-TERM BORROWINGS
Short-term borrowings are summarized as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1997 1996 1995
==================================================================
<S> <C> <C> <C>
Federal funds purchased
and securities sold
under repurchase
agreements $252,729 $127,112 $152,505
FHLB borrowings 645,000 715,000 465,000
Other short-term
borrowings 24,040 2,017 1,141
- ------------------------------------------------------------------
Total $921,769 $844,129 $618,646
==================================================================
</TABLE>
BancGroup's Parent Company had outstanding term notes (Note 9) of which
the current portion, $0 and $1,033,000, is included in other short-term
borrowings at December 31, 1997 and 1996, respectively.
In 1996, BancGroup entered into a line of credit with a financial
institution totaling $35 million of which the current portion, $10,000,000 and
$0, is included in other short-term borrowings at December 31, 1997 and 1996,
respectively (Note 9).
BancGroup had a reverse repurchase agreement outstanding in the amount of
$12 million at December 31, 1997, which is included in other short-term
borrowings. This debt is directly related to an asset of $12 million in
securities purchased under resale agreement with another financial institution.
BancGroup is a member of the Federal Home Loan Bank (FHLB). Based on its
investment in the FHLB and other factors at December 31, 1997, BancGroup can
borrow up to $1.5 billion from the FHLB on either a short or long-term basis. At
December 31, 1997, $656 million was outstanding of which $9.8 million is
included in long term debt with the remaining portion included in other
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
60
<PAGE> 41
short-term borrowings. An additional unused credit of $768 million available
with the FHLB. FHLB has a blanket lien on BancGroup's 1-4 family mortgage loans
in the amount of the outstanding debt. Colonial Bank has a warehouse line of
credit with $225 million of availability from FHLB, of which none was
outstanding at December 31, 1997. This warehouse line is collateralized by
mortgage loans held for sale.
Additional details regarding short-term borrowings are shown below:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1997 1996 1995
=====================================================
<S> <C> <C> <C>
Average amount
outstanding
during the year $760,125 $713,496 $505,801
Maximum amount
outstanding at
any month-end 921,769 885,765 643,698
Weighted average
interest rate:
During year 5.60% 5.43% 6.00%
End of year 5.96% 5.53% 5.68%
======================================================
</TABLE>
9. LONG-TERM DEBT
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1997 1996
===============================================================
<S> <C> <C>
7 1/2% Convertible Subordinated Debentures $ 4,893 $ 7,187
7% Convertible Subordinated Debentures 1,195 1,425
Trust Preferred Securities 70,000 --
Term Note -- 14,116
FHLB Advances 9,831 10,809
REMIC Bonds 4,333 5,536
Other -- 19
- ---------------------------------------------------------------
Total $90,252 $39,092
===============================================================
</TABLE>
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, approximately 349,500 shares of
such Common Stock would be issued.
The 7 % Convertible Subordinated Debentures due December 31, 2004 ("1994
Debentures"), were issued by D/W 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 occurrence of certain events, for each share of stock
received. The 1994 Debentures cannot be redeemed by BancGroup before January 1,
1998. In the event all of the remaining 1986 Debentures are converted into
shares of BancGroup Common Stock in accordance with the 1994 Indenture,
approximately 78,800 shares of such Common Stock would be issued.
On January 29, 1997, BancGroup issued, through a special purpose trust,
$70 million of Trust Preferred Securities. The securities bear interest at 8.92%
and are subject to redemption by BancGroup, in whole or in part at any time
after January 29, 2007 until maturity in January 2017. Circumstances are remote
that redemption will occur prior to maturity. The securities are subordinated
to substantially all of BancGroup's indebtedness.
The subordinated debentures and Trust Preferred Securities described above
are subordinate to substantially all remaining liabilities of BancGroup.
BancGroup had long-term Federal Home Loan Bank (FHLB) Advances outstanding of
$9,831,000 and $10,809,000 at December 31, 1997 and 1996, respectively. These
advances bear interest rates of 5.32% to 7.53% and mature from 1999 to 2011.
In 1996, BancGroup transferred the outstanding balances of a term note and
line of credit to a new term note. The 1996 term note had $15,149,000
outstanding at December 31, 1996. (Also see Note 8.) The 1996 term note was
payable in annual installments of $1,033,000 with the balance due in 2001. 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
above. In addition, BancGroup entered into a new line of credit with the same
financial institution as discussed in Note 8. 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, Colonial Bank, is pledged as collateral. The agreements
contain restrictive covenants which, among other things, limit the sale of
assets, incurrence of additional indebtedness, repurchase of BancGroup stock,
and requires BancGroup to maintain certain specified financial ratios.
BancGroup, with the acquisition of First AmFed in 1993, 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, 1997, only the Class A-4 bonds due
September 1, 2017 remain outstanding with an outstanding balance of $4,333,000
and are collateralized by FNMA mortgaged-backed securities with a carrying value
of $4,523,000. The collections on these securities are used to pay interest and
principal on the bonds. At December 31, 1997, long-term debt, including the
current portion, is scheduled to mature as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
===============================================================
<S> <C>
1998 $ 1,345
1999 407
2000 94
2001 86
2002 95
Thereafter 89,020
- ---------------------------------------------------------------
Total $91,047
===============================================================
</TABLE>
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
61
<PAGE> 42
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. Stockholders of BancGroup may not act by
written consent or call special meetings.
11. REGULATORY MATTERS AND
RESTRICTIONS
During 1997, BancGroup became a member of the Federal Reserve and merged
its subsidiary banks into one bank, Colonial Bank.
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 $125 million
of retained earnings plus certain 1998 earnings would be available for
distribution to BancGroup, from its subsidiaries, as dividends in 1998 without
prior approval from the respective regulatory authorities.
Colonial Bank is required by law to maintain noninterest-bearing deposits
with the Federal Reserve Bank to meet regulatory reserve requirements. At
December 31, 1997, these deposits totaled $18 million.
BancGroup and its subsidiary bank 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 bank 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 bank's 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 bank 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,
1997 and 1996, that BancGroup and its subsidiary bank meet all capital adequacy
requirements to which they are subject.
As of December 31, 1997, the most recent notification from the Federal
Deposit Insurance Corporation categorized BancGroup's subsidiary bank as well
capitalized under the regulatory framework for prompt corrective action. To be
categorized as well capitalized BancGroup and its subsidiary bank 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:
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
62
<PAGE> 43
<TABLE>
<CAPTION>
ACTUAL TO BE WELL CAPITALIZED
--------------------------------------------------
(IN THOUSANDS) AMOUNT RATIO AMOUNT RATIO
===============================================================================================
<S> <C> <C> <C> <C>
AS OF DECEMBER 31,1997
Total Capital (to Risk Weighted Assets)
CONSOLIDATED $563,760 11.30% $498,769 >=10.0%
Colonial Bank 560,793 11.12% 504,313 >=10.0%
Tier I Capital (to Risk Weighted Assets)
CONSOLIDATED 495,490 9.93% 299,261 >=6.0%
Colonial Bank 498,611 9.89% 302,588 >=6.0%
Tier I Capital (to average assets)
CONSOLIDATED 495,490 7.47% 335,152 >=5.0%
Colonial Bank 498,611 7.45% 334,635 >=5.0%
AS OF DECEMBER 31,1996
Total Capital (to Risk Weighted Assets)
CONSOLIDATED $431,099 10.66% $404,401 >=10.0%
Colonial Bank Alabama 305,015 10.47% 291,391 >=10.0%
Colonial Bank Florida 76,164 11.27% 67,584 >=10.0%
Colonial Bank Georgia 52,632 12.51% 42,080 >=10.0%
Tier I Capital (to Risk Weighted Assets)
CONSOLIDATED 371,901 9.20% 242,641 >=6.0%
Colonial Bank Alabama 268,349 9.21% 174,834 >=6.0%
Colonial Bank Florida 67,515 9.99% 40,551 >=6.0%
Colonial Bank Georgia 45,872 10.90% 25,248 >=6.0%
Tier I Capital (to average assets)
CONSOLIDATED 371,901 6.77% 275,858 >=5.0%
Colonial Bank Alabama 268,349 6.65% 201,772 >=5.0%
Colonial Bank Florida 67,515 7.11% 47,504 >=5.0%
Colonial Bank Georgia 45,872 7.32% 31,339 >=5.0%
</TABLE>
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, 1997 were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
===================================================================
<S> <C>
1998 $ 7,203
1999 6,170
2000 5,158
2001 3,890
2002 3,038
Thereafter 16,155
- -------------------------------------------------------------------
Total $41,614
===================================================================
</TABLE>
Rent expense for all leases amounted to $10,975,000 in 1997, $9,409,000 in
1996 and $8,448,000 in 1995.
13. EMPLOYEE BENEFIT PLANS
BancGroup and the majority of its subsidiaries are participants in a
pension plan with certain other related companies. This plan covers most
employees who have met certain age and length of service requirements.
BancGroup's policy is to contribute annually an amount that can be deducted for
federal income tax purposes using the frozen entry age actuarial method.
Actuarial computations for financial reporting purposes are based on the
projected unit credit method. For purposes of determining the actuarial present
value of the projected benefit obligation, the weighted average discount rate
was 7.25% for 1997, 7.75% for 1996 and 7.25% for 1995. The rate of increase in
future compensation levels was 4.25% for 1997, 4.75% for 1996 and 4.00% for
1995. The expected long-term rate of return on assets was 9% for 1997, 1996, and
1995.
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
63
<PAGE> 44
Employee pension benefit plan status at December 31:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1997 1996
==================================================================
<S> <C> <C>
Actuarial present value of benefit
obligations:
Accumulated benefit obligation $ 11,869 $ 8,623
Vested benefit obligation $ 11,116 $ 8,191
Projected benefit obligation for
service rendered to date $ 17,348 $ 13,279
Plan assets at fair value $ 18,486 $ 13,729
- ------------------------------------------------------------------
Plan assets over projected
benefit obligation 1,138 450
Unrecognized net gain (3,824) (2,549)
Unrecognized prior service cost 57 62
Unrecognized net transition asset
over 19 years (39) (45)
- ------------------------------------------------------------------
Accrued pension cost $ (2,668) $ (2,082)
==================================================================
</TABLE>
<TABLE>
<CAPTION>
(IN THOUSANDS) 1997 1996 1995
==================================================================
<S> <C> <C> <C>
Net pension cost included the
following components:
Service cost $ 1,407 $ 1,099 $ 873
Interest cost 1,199 1,029 962
Actual return on plan assets (1,245) (1,463) (851)
Net amortization and deferral (1) 405 (6)
- ------------------------------------------------------------------
Net pension cost $ 1,360 $ 1,070 $ 978
==================================================================
</TABLE>
At December 31, 1997 and 1996, the pension plan assets included investments
of 82,260 and 45,260 shares of BancGroup Common Stock representing 14% and 7% of
pension plan assets, respectively. At December 31, 1997, BancGroup Common Stock
included in pension plan assets had a cost and market value of $616,429 and
$2,832,869, respectively. Pension plan assets are distributed approximately 7%
in U.S. Government and agency issues, 22% in Corporate bonds, 63% in equity
securities (including BancGroup Common Stock) and 8% 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 plan and similar plans of
combined banks amounted to $1,191,000, $900,000 and $794,000 for 1997, 1996, and
1995, respectively.
Prior to the merger, Jefferson maintained a retirement and 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 and 1995, expense recognized under the plan totaled $4,333,000
and $615,000, 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, 1997 and 1996,
702,128 and 772,334, 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 31,1997 and 1996, 1,407,000 and 1,465,500 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 various business combinations, BancGroup assumed qualified
stock options and non-qualified stock options according to the respective
exchange ratios.
Certain of the options issued during 1997 and 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. These options become exercisable on a pro-rata basis over a
period of one to five years.
Following is a summary of the transactions in Common Stock under these
plans for the years ended December 31, 1997, 1996 and 1995.
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
64
<PAGE> 45
<TABLE>
<CAPTION>
QUALIFIED PLANS(1) NONQUALIFIED PLANS(1)
- ----------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
==========================================================================================================
<S> <C> <C> <C> <C>
Outstanding at December 31, 1994 747,949 $ 7.393 1,669,174 $ 5.616
Granted (at $8.445-$13.495 per share) 8,482 9.571 51,481 8.992
Exercised (at $3.08-$8.74 per share) (225,584) 6.499 (29,974) 7.246
Cancelled (at $6.26 per share) (5,986) 6.260 -- --
- ----------------------------------------------------------------------------------------------------------
Outstanding at December 31, 1995 524,861 $ 7.825 1,690,681 $ 5.690
Granted (at $14.580-$19.94 per share) 292,166 17.895 90,000 14.714
Exercised (at $3.08-$9.12 per share) (98,097) 8.216 (407,723) 5.878
Cancelled (at $11.16 per share) (62,632) 11.160 -- --
- ----------------------------------------------------------------------------------------------------------
Outstanding at December 31, 1996 656,298 $ 11.931 1,372,958 $ 6.226
Assumed in business combinations
(at $6.20-$13.78 per share) 63,826 7.320 252,974 9.600
Granted (at $19.155-$27.72 per share) 113,100 22.954 58,500 21.218
Exercised (at $3.080-$17.315 per share) 308,681) 7.095 (361,208) 6.185
Cancelled (at $17.155-$27.20 per share) (42,894) 19.192 (1,614) 7.380
- ---------------------------------------------------------------------------------------------------------
Outstanding at December 31, 1997 481,649 $ 16.362 1,321,610 $ 7.545
=========================================================================================================
</TABLE>
(1) This table includes those plans assumed pursuant to various business
combinations according to the respective exchange ratios.
At December 31, 1997, the total shares outstanding and exercisable under
these option plans were as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ----------------------------------------------------------------------------------------------------------------
WEIGHTED WEIGHTED
NUMBER AVERAGE AVERAGE AGGREGATE NUMBER AVERAGE AGGREGATE
RANGE OF OUTSTANDING REMAINING EXERCISE OPTION EXERCISABLE EXERCISE OPTION
EXERCISE PRICES AT 12/31/97 CONTRACTUAL LIFE PRICE PRICE AT 12/31/97 PRICE PRICE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$3.08-$3.625 277,990 2.95 years $3.124 $868,317 277,990 $3.124 $868,317
$3.725-$3.88 261,384 4.64 years 3.855 1,007,581 261,384 3.855 1,007,581
$5.740-$8.445 263,060 5.28 years 6.855 1,803,340 263,060 6.855 1,803,340
$8.685-$9.12 323,964 2.64 years 9.056 2,933,683 318,354 9.062 2,884,962
$9.25-$10.48 119,063 4.60 years 9.625 1,145,957 119,063 9.625 1,145,957
$11.70-$17.315 324,198 7.78 years 15.601 5,057,827 243,981 15.090 3,681,691
$19.155-$27.72 233,600 9.23 years 21.557 5,035,653 16,000 20.931 334,900
- ----------------------------------------------------------------------------------------------------------------
Total 1,803,259 4.77 years $9.900 $17,852,358 1,499,832 $7,819 $11,726,748
================================================================================================================
</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, 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
==============================================================
<S> <C> <C>
1997
Net income $77,191 $76,665
Earnings per share (basic) $1.84 $1.82
1996
Net income $50,214 $49,209
Earnings per share (basic) $1.30 $1.27
1995
Net income $46,465 $46,261
Earnings per share (basic) $1.30 $1.30
- --------------------------------------------------------------
</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 1997, 1996 and 1995, respectively: dividend yield
of 3.11%, 3.15% and 3.15%; expected volatility of 23% for 1997 and 34% for both
1996 and 1995; risk-free interest rates of 6.46%, 6.04% and 6.63% for 1997, 1996
and 1995, respectively; and expected lives of ten years. The weighted average
fair values of
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
65
<PAGE> 46
options granted during 1997, 1996 and 1995 was $4.81, $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 1997, 1996 and 1995, respectively, 31,082, 31,710 and 34,048 shares of
Common Stock were issued under the Directors Plan, representing approximately
$503,000, $328,000 and $326,000 in directors' fees for 1997, 1996 and 1995,
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. A total of $423,000, $171,000 and $0 in compensation
expense was charged to operations under this plan for the years ended December
31, 1997, 1996 and 1995, respectively. During 1997, 1996 and 1995 the Company
awarded 29,102, 50,000 and 50,000 shares, respectively, under the Stock Bonus
and Retention Plan having weighted average fair value at grant date of $20.82,
$19.37 and $16.25, respectively. An aggregate of 1,500,000 shares have been
reserved for issuance under this Plan. There were 130,702 shares outstanding of
which 28,960 shares were vested at December 31, 1997.
In 1994, BancGroup adopted the Employee Stock Purchase Plan which provides
employees of BancGroup, who work in excess of 29 hours per week, with a
convenient way to become shareholders of BancGroup. The participant authorizes a
regular payroll deduction of not less than $10 or not more than 10% of salary.
The participant may also contribute whole dollar amounts of not less than $100
or not 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 39,098 shares issued and outstanding under this Plan at December 31, 1997.
15. CONTINGENCIES
BancGroup and its subsidiaries 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, 1997,
will have a materially adverse effect on BancGroup's financial statements.
16. RELATED PARTIES
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
$976,000, $1,651,000, and $1,712,000 in 1997, 1996 and 1995, respectively.
BancGroup, Colonial Bank and CMC lease premises, including their principal
corporate offices, and airplane services from companies owned partly or wholly
by principal shareholders of BancGroup. Amounts paid under these leases and
agreements approximated $3,475,000, $3,252,000 and $3,100,000 in 1997, 1996 and
1995, respectively.
During 1997, 1996 and 1995, BancGroup and its subsidiaries paid or accrued
fees of approximately $1,659,000, $1,475,000 and $1,306,000, 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) 1997 1996 1995
==========================================================
<S> <C> <C> <C>
Stationery, printing,
and supplies $ 5,060 $ 3,925 $ 3,651
Postage 3,315 2,701 2,288
Telephone 4,915 4,780 3,849
Insurance 1,766 2,123 1,778
Legal fees 3,363 2,846 2,511
Advertising and
public relations 6,168 5,466 4,297
FDIC assessment 868 2,435 4,647
Other 30,839 27,602 27,351
- ----------------------------------------------------------
Total $56,294 $51,878 $50,372
==========================================================
</TABLE>
18. INCOME TAXES
The components of income taxes were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1997 1996 1995
==========================================================
<S> <C> <C> <C>
Currently payable:
Federal $40,768 $26,391 $25,329
State 3,822 2,311 2,396
Deferred 1,320 (1,398) (1,960)
- ----------------------------------------------------------
Total $45,910 $27,304 $25,765
==========================================================
</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:
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
66
<PAGE> 47
<TABLE>
<CAPTION>
(IN THOUSANDS) 1997 1996 1995
==========================================================
<S> <C> <C> <C>
Tax at statutory rate
on income from
operations $43,085 $27,118 $25,253
Add:
State income taxes, net
of federal tax benefit 2,687 1,903 1,599
Amortization of net
purchase accounting
adjustments 1,003 369 237
Other 757 636 926
- ----------------------------------------------------------
Total 47,532 30,026 28,015
==========================================================
Deduct:
Nontaxable interest
income 1,588 2,702 1,861
Dividends received
deduction 34 16 252
Other -- 4 137
- ----------------------------------------------------------
Total 1,622 2,722 2,250
- ----------------------------------------------------------
TOTAL INCOME TAXES $45,910 $27,304 $25,765
==========================================================
</TABLE>
The components of BancGroup's net deferred tax asset as of December 31,
1997 and 1996, were as follows:
<TABLE>
<CAPTION>
1997 1996
==========================================================
<S> <C> <C>
Deferred tax assets:
Allowance for possible loan
losses $20,046 $18,586
Pension accrual in excess
of contributions 1,078 952
Accumulated amortization of
mortgage servicing rights 1,348 2,384
Other real estate owned
write-downs 1,187 1,435
Other liabilities and reserves 2,040 1,556
Accelerated tax depreciation 250 135
Other 2,027 2,236
- ----------------------------------------------------------
Total deferred tax asset 27,976 27,284
==========================================================
Deferred tax liabilities:
Cumulative accretion/discount
on bonds 1,097 428
Differences between financial
reporting and tax bases of net
assets acquired 477 962
Prepaid FDIC assessment 223 1
Loan loss reserve recapture 1,090 1,779
Unrealized gain on securities
available for sale 620 121
Other 3,370 3,683
- ----------------------------------------------------------
Total deferred tax liability 6,877 6,974
==========================================================
Net deferred tax asset $21,099 $20,310
==========================================================
</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. EARNINGS PER SHARE
BancGroup adopted SFAS No. 128, "Earnings Per Share" on December 31,1997.
This statement requires all entities with complex capital structures to present
a reconciliation of the numerator and denominator of the basic EPS computation
to the numerator and denominator of the diluted EPS computation. The following
table reflects this reconciliation:
<TABLE>
<CAPTION>
PER SHARE
(IN THOUSANDS) INCOME SHARES AMOUNT
=========================================================================
<S> <C> <C> <C>
1997
Basic EPS
Net income $77,191 42,034 $ 1.84
Effect of Dilutive Securities
Options 920
Convertible Debentures,
net of taxes 295 482
- -------------------------------------------------------------------------
Diluted EPS $77,486 43,436 $ 1.78
=========================================================================
1996
Basic EPS
Net income $50,214 38,615 $ 1.30
Effect of Dilutive Securities
Options 1,150
Convertible Debentures,
net of taxes 445 620
- -------------------------------------------------------------------------
Diluted EPS $50,659 40,385 $ 1.25
=========================================================================
1995
Basic EPS
Net income $46,465 35,696 $ 1.30
Effect of Dilutive Securities
Options 2,214
Convertible Debentures,
net of taxes 1,075 1,511
- -------------------------------------------------------------------------
Diluted EPS $47,540 39,421 $ 1.21
=========================================================================
</TABLE>
Subsequent to December 31, 1997, BancGroup consummated four business
combinations (See Note 2) and issued a total of 5,201,376 shares and assumed
217,995 stock options.
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
67
<PAGE> 48
20. 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, 1997
and 1996. 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 -- Rates currently available to BancGroup for
borrowings with similar terms and remaining maturities are used to estimate
fair value of existing borrowings.
- - 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, 1997 and 1996.
The estimated fair values of BancGroup's financial instruments at December
31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
================================================================
CARRYING FAIR CARRYING FAIR
(IN THOUSANDS) AMOUNT VALUE AMOUNT VALUE
==================================================================================================
<S> <C> <C> <C> <C>
Financial assets:
Cash and short-term investments $ 273,412 $ 273,412 $ 261,200 $ 261,200
Securities available for sale 485,318 485,318 462,222 462,222
Investment securities 264,230 266,336 300,142 302,295
Mortgage loans held for sale 225,331 225,288 157,966 160,060
Mortgage servicing rights and
excess servicing fees 141,800 163,948 107,797 152,064
Loans 5,176,926 4,216,178
Less: allowance for loan losses (62,182) (53,443)
- --------------------------------------------------------------------------------------------------
Loans, net 5,114,744 5,200,427 4,162,735 4,226,028
- --------------------------------------------------------------------------------------------------
Total $ 6,504,835 $6,614,729 $ 5,452,062 $5,563,869
==================================================================================================
Financial liabilities:
Deposits $ 5,255,830 $4,918,993 $ 4,299,721 $4,313,380
Short-term borrowings 921,769 919,114 844,129 844,129
Long-term debt 90,252 98,332 39,092 42,121
- --------------------------------------------------------------------------------------------------
Total $ 6,267,851 $5,936,439 $ 5,182,942 $5,199,630
==================================================================================================
</TABLE>
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
68
<PAGE> 49
21. CONDENSED FINANCIAL INFORMATION
OF THE COLONIAL BANCGROUP, INC.
(PARENT COMPANY ONLY)
<TABLE>
<CAPTION>
STATEMENT OF CONDITION
December 31
----------------------------
(IN THOUSANDS) 1997 1996
====================================================================
<S> <C> <C>
ASSETS:
Cash* $ 12,791 $ 1,040
Investment in subsidiaries* 565,560 424,128
Intangible assets 3,153 3,541
Other assets 5,166 4,565
- --------------------------------------------------------------------
Total assets $586,670 $433,274
====================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY:
Short-term borrowings $ 10,000 $ 1,033
Subordinated debt 76,088 8,612
Other long-term debt 14,116
Other liabilities 6,328 6,805
Shareholders' equity 494,254 402,708
- --------------------------------------------------------------------
Total liabilities and
shareholders' equity $586,670 $433,274
====================================================================
*Eliminated in consolidation
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Years Ended December 31
-------------------------------
(IN THOUSANDS) 1997 1996 1995
===================================================================
<S> <C> <C> <C>
INCOME:
Cash dividends from
subsidiaries* $40,931 $16,470 $17,019
Interest and dividends
on short-term investments* 850 203 111
Other income 2,466 2,210 1,430
- -------------------------------------------------------------------
Total income 44,247 18,883 18,560
===================================================================
EXPENSES:
Interest 6,648 1,917 2,698
Salaries and
employee benefits 1,252 3,447 754
Occupancy expense 346 347 298
Furniture and
equipment expense 93 96 73
Amortization of
intangible assets 388 442 459
Other expenses 4,472 5,434 4,753
- -------------------------------------------------------------------
Total expenses 13,199 11,683 9,035
===================================================================
Income before income taxes
and equity in undistributed
net income of
subsidiaries 31,048 7,200 9,525
Income tax benefit 1,964 3,057 2,406
- -------------------------------------------------------------------
Income before equity in
undistributed net
income of subsidiaries 33,012 10,257 11,931
Equity in undistributed
net income of
subsidiaries* 44,179 39,957 34,534
- -------------------------------------------------------------------
Net income $77,191 $50,214 $46,465
===================================================================
</TABLE>
*Eliminated in consolidation
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
69
<PAGE> 50
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31
-------------------------------
(IN THOUSANDS) 1997 1996 1995
===================================================================
<S> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income $77,191 $50,214 $46,465
Adjustments to
reconcile net income
to net cash provided by
operating activities:
Depreciation, amorti-
zation, and accretion 626 544 1,099
Increase in prepaids
and other assets (659) (894) (2,460)
Increase (decrease) in
accrued income taxes 1,841 (65) 3,387
Increase in accrued
expenses 2,360 538 1,735
Undistributed
earnings
of subsidiaries* (44,179) (39,957) (34,534)
- -------------------------------------------------------------------
Total adjustments (40,011) (39,834) (30,773)
- -------------------------------------------------------------------
Net cash provided by
operating activities 37,180 10,380 15,692
- -------------------------------------------------------------------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Capital expenditures (462) (124) (175)
Purchase of securities -- -- (400)
Proceeds from maturities
of securities 406 -- --
Proceeds from sale
of premises and
equipment -- 3,000 538
Net investment
in subsidiaries* (55,161) (867) (8,456)
- -------------------------------------------------------------------
Net cash (used in)
provided by investing
activities (55,217) 2,009 (8,493)
- -------------------------------------------------------------------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Increase in short-term
borrowings (1,500) -- --
Proceeds from issuance
of subordinated debt 70,000 -- 1,425
Proceeds from issuance
of long-term debt -- -- 6,249
Proceeds from issuance
of short-term debt 10,000 -- --
Repayment of
long-term debt (15,149) (2,350) (1,000)
Proceeds from
issuance of
common stock 7,281 3,318 2,406
Purchase of treasury
stock (15,887) -- --
Dividends paid (24,957) (18,573) (12,329)
Other, net 279 (61)
- -------------------------------------------------------------------
Net cash provided by
(used in) financing
activities 29,788 (17,326) (3,310)
- -------------------------------------------------------------------
Net increase (decrease)
in cash and cash
equivalents 11,751 (4,937) 3,889
Cash and cash
equivalents at
beginning of year 1,040 5,977 2,088
- -------------------------------------------------------------------
CASH AND CASH
EQUIVALENTS AT END
OF YEAR* $12,791 $ 1,040 $ 5,977
===================================================================
Supplemental
disclosure of cash
flow information:
Cash paid (received)
during the year for:
Interest $ 3,786 $ 1,874 $ 2,743
Income taxes (3,140) (2,493) (274)
===================================================================
</TABLE>
*Eliminated in consolidation.
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
70
<PAGE> 51
Colonial BancGroup, Inc.
COMMON STOCK INFORMATION 97
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 Common Stock was traded on the over-the-counter market and was
quoted on NASDAQ under the symbol "CLBGA."
The following table indicates the high and low closing prices for Common
Stock during 1996 and 1997.
<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
- --------------------------------------------------------------------------------
1997
1st Quarter
Common ...................... 24 18 2/3 .150
2nd Quarter
Common ...................... 24 7/8 22 .150
3rd Quarter
Common ...................... 29 3/16 24 1/4 .150
4th Quarter
Common ...................... $35 1/16 $28 15/16 $ .150
================================================================================
</TABLE>
VOTING SECURITIES AND SHAREHOLDERS
As of December 31, 1997 and 1996, BancGroup had outstanding 42,545,425 and
39,145,685, respectively, shares of Common Stock, with 7,938 and 5,747
shareholders of record.
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
71
<PAGE> 52
Colonial BancGroup, Inc.
STOCKHOLDER INFORMATION 97
CORPORATE OFFICES
Colonial Financial Center
One Commerce Street
Montgomery, Alabama 36104
(334) 240-5000
ANNUAL MEETING
The annual meeting of shareholders of The Colonial BancGroup, Inc. will be held
on Wednesday, April 15, 1998, at 10:00 a.m., in the corporate offices.
STOCK EXCHANGE LISTING
Common Stock is traded on the New York Stock Exchange under symbol CNB. In many
newspapers the stock is listed as ColBgp.
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
Owners of BancGroup Common Stock may participate in the Dividend Reinvestment
and Common Stock Purchase Plan. Dividends are reinvested and additional shares
purchased at 100% of the market price average, determined as provided in the
plan.
A quarterly dividend of $0.17 per share was declared on January 21, 1998,
payable on February 10, 1998 to shareholders of record on February 3, 1998.
Dividends have been paid every year since the company was founded in 1981.
During those 16 years of uninterrupted dividend payments, the annual dividend
rate has increased every year since 1990. For further information, plus a
prospectus and enrollment card, contact:
Sherri Schmidt
The Colonial BancGroup, Inc.
Dividend Reinvestment Plan
P.O. Box 1108
Montgomery, Alabama 36101
(888) 843-0622
FORM 10-K
Form 10-K is BancGroup's annual report filed with the Securities and Exchange
Commission. A copy of this report is available by writing to:
Sherri Schmidt
The Colonial BancGroup, Inc.
P.O. Box 1108
Montgomery, Alabama 36101
(888) 843-0622
TRANSFER AND DIVIDEND DISBURSING AGENT
SunTrust Bank, Atlanta
Stock Transfer Department
P.O. Box 4625
Atlanta, Georgia 30302
(800) 568-3476
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
72
<PAGE> 1
EXHIBIT 21
LIST OF SUBSIDIARIES OF THE REGISTRANT
COLONIAL BANK, AN ALABAMA BANKING CORPORATION.
THE COLONIAL BANCGROUP BUILDING CORPORATION, AN ALABAMA CORPORATION.
COLONIAL CAPITAL II, A DELAWARE BUSINESS TRUST.
DADELAND SOFTWARE SERVICES, A FLORIDA CORPORATION.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF COOPERS & LYBRAND L.L.P.
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements
of The Colonial BancGroup, Inc. listed below of our report dated February 27,
1998 on our audits of the consolidated financial statements of The Colonial
BancGroup, Inc. and Subsidiaries, as of December 31, 1997 and 1996 and for each
of the three years in the period ended December 31, 1997, which report is
incorporated by reference in this Annual Report on Form 10-K for the year ended
December 31, 1997.
Registration Statements on
Form S-3
Registration Numbers:
33-5665 333-25463
33-62071
Registration Statements on
Form S-4
Registration Numbers:
333-26537 333-39277
333-32163 333-39267
333-39283
Registration Statements on
Form S-8
Registration Numbers:
2-89959 33-63347
33-11540 33-78118
33-13376 333-10475
33-41036 333-11255
33-47770
Post-Effective Amendment No. 2
on Form
S-8 to Registration Statements
on Form S-4
Registration Numbers:
333-14703 333-16481
333-14883 333-20291
Montgomery, Alabama
March 27, 1998
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes Robert E. Lowder, Young J. Boozer, III and W. Flake Oakley,
IV, and each of them, his or her true and lawful attorney-in-fact and agent,
with full power of substitution, for him or her and in his or her name, place
and stead, in any and all capacities, to sign on his or her behalf The Colonial
BancGroup, Inc.'s Annual Report on Form 10-K for the year ended December 31,
1997.
Hereby executed by the following persons in the capacities indicated on
January 21, 1998, in Montgomery, Alabama.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ ROBERT E. LOWDER Chairman of the Board, President and Chief
- --------------------------------------------------- Executive Officer
Robert E. Lowder
Director
- ---------------------------------------------------
Lewis Beville
Director
- ---------------------------------------------------
Young J. Boozer
/s/ WILLIAM BRITTON Director
- ---------------------------------------------------
William Britton
Director
- ---------------------------------------------------
Jerry J. Chesser
/s/ AUGUSTUS K. CLEMENTS, III Director
- ---------------------------------------------------
Augustus K. Clements, III
/s/ ROBERT CRAFT Director
- ---------------------------------------------------
Robert Craft
/s/ PATRICK F. DYE Director
- ---------------------------------------------------
Patrick F. Dye
Director
- ---------------------------------------------------
Clinton Holdbrooks
Director
- ---------------------------------------------------
D.B. Jones
Director
- ---------------------------------------------------
Harold D. King
/s/ JOHN ED MATHISON Director
- ---------------------------------------------------
John Ed Mathison
Director
- ---------------------------------------------------
Milton McGregor
</TABLE>
2
<PAGE> 2
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ JOHN C.H. MILLER, JR. Director
- ---------------------------------------------------
John C. H. Miller, Jr.
Director
- ---------------------------------------------------
Joe D. Mussafer
/s/ WILLIAM E. POWELL, III Director
- ---------------------------------------------------
William E. Powell, III
/s/ DONALD J. PREWITT Director
- ---------------------------------------------------
Donald J. Prewitt
Director
- ---------------------------------------------------
Jack H. Rainer
/s/ JIMMY RANE Director
- ---------------------------------------------------
Jimmy Rane
/s/ FRANCES E. ROPER Director
- ---------------------------------------------------
Frances E. Roper
Director
- ---------------------------------------------------
Simuel Sippial
Director
- ---------------------------------------------------
Ed V. Welch
</TABLE>
3
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 254,252
<INT-BEARING-DEPOSITS> 19,160
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 485,318
<INVESTMENTS-CARRYING> 264,230
<INVESTMENTS-MARKET> 266,336
<LOANS> 5,176,926
<ALLOWANCE> 62,182
<TOTAL-ASSETS> 6,850,828
<DEPOSITS> 5,255,830
<SHORT-TERM> 921,769
<LIABILITIES-OTHER> 88,723
<LONG-TERM> 90,252
0
0
<COMMON> 106,364
<OTHER-SE> 387,890
<TOTAL-LIABILITIES-AND-EQUITY> 6,850,828
<INTEREST-LOAN> 442,741
<INTEREST-INVEST> 54,528
<INTEREST-OTHER> 718
<INTEREST-TOTAL> 497,987
<INTEREST-DEPOSIT> 199,623
<INTEREST-EXPENSE> 249,488
<INTEREST-INCOME-NET> 248,499
<LOAN-LOSSES> 13,026
<SECURITIES-GAINS> 372
<EXPENSE-OTHER> 200,131
<INCOME-PRETAX> 123,101
<INCOME-PRE-EXTRAORDINARY> 123,101
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 77,191
<EPS-PRIMARY> 1.84
<EPS-DILUTED> 1.78
<YIELD-ACTUAL> 4.31
<LOANS-NON> 23,398
<LOANS-PAST> 7,028
<LOANS-TROUBLED> 952
<LOANS-PROBLEM> 129,000
<ALLOWANCE-OPEN> 53,443
<CHARGE-OFFS> 15,298
<RECOVERIES> 4,139
<ALLOWANCE-CLOSE> 62,182
<ALLOWANCE-DOMESTIC> 62,182
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,126
</TABLE>
