-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NAGKqTSJ1LDJ03XRxh9NO/aqDr2IIHrbiOt6vTpQ0sxArYKVA4avkyD+zkiq2+Qh rRcdnPfwMtLlO4sr8y8eAA== 0000950144-96-001235.txt : 19960329 0000950144-96-001235.hdr.sgml : 19960329 ACCESSION NUMBER: 0000950144-96-001235 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960327 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: COLONIAL BANCGROUP INC CENTRAL INDEX KEY: 0000092339 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 630661573 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-13508 FILM NUMBER: 96539409 BUSINESS ADDRESS: STREET 1: ONE COMMERCE ST STE 800 STREET 2: P O BOX 1108 CITY: MONTGOMERY STATE: AL ZIP: 36104 BUSINESS PHONE: 3342405000 MAIL ADDRESS: STREET 1: ONE COMMERCE STREET STE 800 STREET 2: PO BOX 1108 CITY: MONTGOMERY STATE: AL ZIP: 36101 FORMER COMPANY: FORMER CONFORMED NAME: SOUTHLAND BANCORPORATION DATE OF NAME CHANGE: 19820205 10-K 1 FORM 10-K 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM 10-K (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, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE #1-13508
THE COLONIAL BANCGROUP, INC. (Exact name of registrant as specified in its charter) 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.)
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 --- --- 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 January 31, 1996 based on the closing price of $32.50 per share for Common Stock was $304,278,130. (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 January 31, 1996 were 13,491,691. DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT PART OF FORM 10-K - -------------------------------------------------------------------- ----------------- Portions of Annual Report to Shareholders Part I, for fiscal year ended December 31, 1995 Part II, as specifically referred to herein. and Part IV Portions of Definitive Proxy Statement Part III for 1996 Annual Meeting as specifically referred to herein.
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 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. BancGroup operates three banking subsidiaries, one in Alabama, one in Tennessee and one in Georgia (sometimes referred to collectively as the "Colonial Banks"). Colonial Bank, located in Alabama, has 95 banking offices in Birmingham, Montgomery, Huntsville, Florence, Tuscumbia, Anniston, Pell City, Opelika, Foley, Mobile and several other Alabama cities. Colonial Bank of Tennessee has four banking offices in Fayetteville, Pulaski and Ardmore, Tennessee. Colonial Bank, a federal savings bank located in Dunwoody, Georgia, operates three banking offices in Buckhead, Dunwoody and Kennesaw, Georgia. (This bank is sometimes referred to herein as "Colonial Bank -- Georgia.") The Colonial Banks conduct a general commercial banking business in their respective service areas and offer banking services such as the receipt of demand, savings and time deposits, personal, commercial and mortgage loans, credit card and safe deposit box services, and the purchase and sale of government securities. Colonial Bank in Alabama is active as a correspondent bank for unaffiliated banks. At December 31, 1995, BancGroup's banking subsidiaries 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 its subsidiary banks. Various statutory provisions and regulatory policies limit the amount of dividends the subsidiary banks may pay without regulatory approval. In addition, federal statutes restrict the ability of subsidiary banks to make loans to BancGroup. BancGroup's affiliate banks encounter intense competition in their commercial banking business, generally from other banks located in their respective metropolitan and service areas. The Colonial Banks compete 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, the Colonial Banks compete with savings and loan associations, credit unions, factors, insurance companies and other financial institutions. On February 17, 1995, BancGroup's Alabama subsidiary bank, Colonial Bank, acquired The Colonial Company and its wholly owned subsidiary, Colonial Mortgage Company. Prior to this acquisition, The Colonial Company spun off its other businesses which it had previously operated to Robert E., James K. and Thomas H. Lowder. In this acquisition, BancGroup issued 2,272,727 shares of its Class A Common Stock to Robert E., James K. and Thomas H. Lowder, who were the sole shareholders of The Colonial Company and directors of BancGroup. Both BancGroup and the Lowder brothers have provided certain indemnities to each other for breaches of the acquisition agreement by the other party. The transaction was approved by a vote of the stockholders of BancGroup on December 8, 1994. The acquisition price in this transaction was negotiated for BancGroup by a committee of three independent directors of BancGroup consisting of Clinton O. Holdbrooks, Robert S. Craft, and William E. Powell, III, and was based upon an opinion of a nationally recognized investment banking firm that the price paid by BancGroup was fair from a financial point of view to the stockholders of BancGroup other than Robert E., James K., and Thomas H. Lowder. Colonial Mortgage Company ("CMC") is a subsidiary of Colonial Bank in Alabama. CMC is engaged in the retail and wholesale mortgage banking business. CMC operates retail offices in Alabama and 6 regional wholesale offices covering 29 states. CMC's retail operation offers conventional, government and jumbo products directly to borrowers. CMC's wholesale operation offers somewhat limited products comprised of conventional and jumbo products to various mortgage brokers. CMC offers a wholesale government program 1 3 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. BancGroup has one direct nonbanking subsidiary, The Colonial BancGroup Building Corporation, which was established primarily to own and lease the buildings and land used by banking affiliates of BancGroup. The following table reflects certain information concerning BancGroup's banking subsidiaries and BancGroup on a consolidated basis as of December 31, 1995.
COLONIAL BANK COLONIAL BANK COLONIAL BANCGROUP COLONIAL BANK OF TENNESSEE GEORGIA CONSOLIDATED(1) ------------- ------------- ------------- ------------------ (DOLLARS IN THOUSANDS) Banking Offices......................... 95 4 3 102 Employees............................... 1,654 38 56 1,751 Percent of Ownership by BancGroup....... 100% 100% 100% Loans Net of Unearned Income............ $ 2,623,193 $59,644 $ 192,741 $2,875,581 Mortgage Loans Held For Sale............ 110,486 -- -- 110,486 Investment Securities................... 247,092 22,401 -- 269,493 Securities Available For Sale........... 156,850 1,010 2,003 159,863 Total Assets............................ 3,439,098 91,415 219,513 3,741,217 Deposits................................ 2,555,830 79,826 157,360 2,785,958 Shareholder's Equity.................... 250,026 9,635 18,207 253,148
- --------------- (1) All material inter-company balances have been eliminated in consolidation. Prior to February 21, 1995, BancGroup had two classes of common stock outstanding, Class A and Class B. The Class A Common Stock had limited voting rights and was traded as a NASDAQ security. The Class B Common Stock was not publicly traded. On February 21, 1995, the Class A and Class B Common Stock were reclassified into one class, BancGroup's Common Stock, and on February 24, 1995, the BancGroup Common Stock was listed for trading on the New York Stock Exchange. 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. LENDING ACTIVITIES BancGroup's commercial banking loan portfolio is comprised primarily of commercial real estate loans (22%) and residential real estate loans (49%), a significant portion of which is located within the State of Alabama. 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 in Alabama 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 the Colonial Banks, makes loans for a range of business and personal uses in response to local demands for credit. Loans are concentrated in Alabama, Tennessee and Georgia and are dependent upon economic conditions in those states. Alabama has historically been a slow growth state. 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 state. 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 are primarily dependent upon 2 4 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. 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 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. BancGroup's subsidiary banks fund 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 Bank Holding Company Act of 1956, as amended ("BHCA") and many of the Federal Reserve's regulations promulgated thereunder. It is also subject to regulation by the Georgia Department of Banking and Finance and by the Office of Thrift Supervision ("OTS") as a savings and loan holding company. The Colonial Banks are subject to supervision and examination by applicable federal and state banking agencies. In Alabama, Colonial Bank, as a state chartered bank and not a member of the Federal Reserve system, is regulated and examined both by the State of Alabama Banking Department and by the Federal Deposit Insurance Corporation ("FDIC"). Colonial Bank of Tennessee is also state chartered and not a member of the Federal Reserve system and is regulated by both the State of Tennessee Department of Financial Institutions and by the FDIC. Colonial Bank -- Georgia, a federal savings bank, is regulated by the OTS. The deposits of the Colonial Banks 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 3 5 of the Colonial Banks. Moreover, the FDIC may terminate deposit insurance of the Colonial Banks under certain circumstances. Both the FDIC and the respective state regulatory authorities 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 five percent 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 percent 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 percent and 25 percent 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 and the OTS (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 regulators. 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 new 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 provide express authorization), the merger of insured banks with banks in other states. The officers and directors of BancGroup and the Colonial Banks are subject to numerous insider transactions restrictions, including limits on the amount and terms of transactions involving the Colonial Banks, on the one hand, and their principal stockholders, officers, directors, and affiliates on the other. There are a number of other laws that govern the relationship between the Colonial Banks and their customers. For instance, 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 full 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 the Colonial Banks' relationships with their customers. The Budget Reconciliation Act of 1995 ("Budget Act") was passed by Congress but subsequently vetoed by President Clinton. Congressional leadership and President Clinton began discussions in 1995 to determine whether the Congress and the Administration could reach a compromise on budget reconciliation. It is unknown whether these negotiations will be successful. The Budget Act originally passed by Congress and subsequently vetoed by the President contained a provision which directed the FDIC to set a one-time special 4 6 assessment on deposits insured by the Savings Association Insurance Fund ("SAIF") which would be in an amount sufficient to recapitalize the SAIF. It is anticipated that a special assessment in the range of $0.78 to $0.85 per $100 of SAIF-insured deposits would be necessary in order to recapitalize the SAIF, if the assessment were to be made in the next six months. The recapitalization would allow a reduction in the current premium of $0.23 per $100 of SAIF insured deposits. BancGroup's subsidiary banks maintain deposits which are insured by both the SAIF and the Bank Insurance Fund. The SAIF insured deposits in all of BancGroup's subsidiary banks total $679 million, after adjusting for certain allowances in the current proposal, which could be subject to the special assessment. In the event a budget reconciliation agreement is reached between the Congress and the Administration, it is expected that the agreement would include the special assessment provision contained in the original Budget Act. If no agreement is reached by the Congress and the Administration, it is still possible that Congress could attach such a provision to another piece of legislation or pass such a provision as a free-standing bill. The Administration, in testimony before Congress and in the press, has indicated its support of the recapitalization of SAIF in the manner provided in the Budget Act. It should be noted that supervision, regulation, and examination of BancGroup and the Colonial Banks are intended primarily for the protection of depositors, not stockholders. 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, 1995, at pages 16 through 39 under the captions "Selected Financial Data, Selected Quarterly Data 1995-1994" 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 BancGroup's, Colonial Bank's, and Colonial Mortgage's principal offices are located in Montgomery, Alabama in the Colonial Financial Center which 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. The Colonial Bank of Tennessee's principal offices are located in Ardmore, Tennessee, in a building owned by the bank. Colonial Bank's central operations offices are located in Birmingham, Alabama in a 16 story building owned by the bank. Approximately 90% or 71,609 square feet of this building is utilized by Colonial Bank; the remainder is available for rent to third parties. Colonial Bank -- Georgia's principal offices are located in Dunwoody, Georgia, in a building owned by the bank. As of December 31, 1995, bank subsidiaries of BancGroup owned 89 and leased 13 of their full-service banking offices. See Notes 7 and 12 of the Notes to 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. 5 7 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 59 of the Annual Report to Shareholders for the year ended December 31, 1995, and is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA "Selected Financial Data" and "Selected Quarterly Financial Data 1995-1994" on pages 16 through 18 of the Annual Report to Shareholders for the year ended December 31, 1995 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 19 through 39 of the Annual Report to Shareholders for the year ended December 31, 1995 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 1995 at pages 40 through 58 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 directors is contained in BancGroup's proxy statement dated March 18, 1996, for its 1996 annual meeting of shareholders under the captions "Election of Directors" and "Section 16 Reporting" and is incorporated herein by reference. 6 8 EXECUTIVE OFFICERS OF THE REGISTRANT
NAME, AGE AND YEAR PRESENT AND PRINCIPAL OCCUPATION BECAME EXECUTIVE FOR OFFICER PRESENT POSITION WITH BANCGROUP THE LAST FIVE YEARS - ---------------------- ---------------------------------- ---------------------------------- Robert E. Lowder...... Chairman of the Board, Chief Chairman of the Board, Chief 53, 1981 Executive Officer and President, Executive Officer and President, BancGroup; Chairman of the BancGroup; Chairman of the Board, Chief Executive Officer Board, Chief Executive Officer and President, Colonial Bank in and President, Colonial Bank in Alabama; Chairman of the Board, Alabama; Chairman of the Board, Colonial Bank in Georgia; Colonial Bank in Georgia; Chairman of the Board, Colonial Chairman of the Board, Colonial Mortgage Co., Montgomery Mortgage Co.; Chairman of the Board and President, Colonial Broadcasting Company, Montgomery Harold D. King........ Vice Chairman of the Board Vice Chairman of the Board, 63, 1986 BancGroup, Pell City Jack H. Rainer........ Vice Chairman of the Board President and Chief Executive 73, 1981 Officer, Bankers Credit Life Insurance Company, Montgomery Young J. Boozer, Executive Vice President -- Executive Vice President -- III................. Investments Investments, BancGroup, 46, 1986 Montgomery W. Flake Oakley, IV... Executive Vice President, Chief Chief Financial Officer, Secretary 42, 1988 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 Michael R. Holley..... Executive Vice President -- Executive Vice President -- 46, 1995 Operations Operations, BancGroup since January 1995; Vice President and Chief Financial Officer, The Colonial Company 1990 to 1995, Montgomery Samuel R. Morgan...... Executive Vice President and Chief Executive Vice President and Chief 47, 1995 Credit Officer Credit Officer, BancGroup since October 1995; Senior Loan Officer -- Colonial Bank Montgomery 1986 to 1995, Montgomery Michelle Condon....... Executive Vice President -- Retail Executive Vice President -- Retail 41, 1995 Banking Banking, BancGroup since October 1995; Colonial Bank -- Vice President, Budgeting & Planning, Colonial Bank 1990 to 1995, Montgomery
7 9 ITEM 11. EXECUTIVE COMPENSATION The information required by this item is contained in BancGroup's proxy statement dated March 18, 1996 for its 1996 annual meeting of shareholders under the caption "Executive Compensation" and is incorporated herein by reference. 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 18, 1996, for its 1996 annual meeting of shareholders 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 18, 1996, for its 1996 annual meeting of shareholders under the captions "Compensation Committee Interlocks and Insider Participation" and "Executive Compensation" and is incorporated herein by reference. 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, 1995; Consolidated Statements of Condition as of December 31, 1995 and 1994. Consolidated Statements of Income for the years ended December 31, 1995, 1994 and 1993. Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 1995, 1994 and 1993. Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993. 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. 3. Exhibits
EXHIBITS AND DESCRIPTION ------------------------------------------------------------------------------------------ Exhibit 3 -- Articles of Incorporation and Bylaws: (A) -- 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. (B) -- 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.
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EXHIBITS AND DESCRIPTION ------------------------------------------------------------------------------------------ Exhibit 4 -- Instruments defining the rights of security holders: (A) -- 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. (B) -- 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. (C) -- 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. (D) -- Trust Indenture dated as of March 25, 1986 included as Exhibit 4 to the Registrant's Amendment No, 1 to Registration Statement as Form S-2, file number 33-4004, effective March 25, 1986, and incorporated herein by reference. Exhibit 10-- Material Contracts: (A)(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 (Commission Registration No, 33-41036), effective June 4, 1991, and incorporated herein by reference. (A)(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 (Commission Registration No, 33-41036), effective June 4, 1991, and incorporated herein by reference. (A)(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. (A)(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. (B)(1) -- Residential Loan Funding Agreement between Colonial Bank and Colonial Mortgage Company dated January 18, 1988, included as Exhibit 10(B)(1) to the Registrant's Registration Statement as Form S-4, file no. 33-52952, and incorporated herein by reference. (B)(2) -- Loan Agreement between the Registrant and SunBank, National Association, dated August 29, 1995, filed as Exhibit 10(B)(2) to the Registrant's Registration Statement on Form S-4, registration number 33-01163 and incorporated herein by reference. (B)(3) -- 1993 Term Loan Agreement between the Registrant and SunBank, National Association, and related Pledge Agreement filed as Exhibit 10(B)(1) to Amendment no. 2 of the Registrant's Registration Statement on Form S-4, registration number 33-63826 and incorporated herein by reference. (C)(1) -- 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. (C)(2) -- 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.
9 11
EXHIBITS AND DESCRIPTION ------------------------------------------------------------------------------------------ (D) -- Stock Purchase Agreement dated as of July 20, 1994, by and among The Colonial BancGroup, Inc., Colonial Bank, The Colonial Company, Colonial Mortgage Company, and Robert E., James K. and Thomas H. Lowder, included as Exhibit 2 in Registrant's registration statement on Form S-4, Registration no. 33-83692 and incorporated herein by reference. (E) -- Agreement and Plan of Merger between The Colonial BancGroup, Inc., and Commercial Bancorp of Georgia, Inc., dated as of December 21, 1995, included as Exhibit 10(E) to Registrant's Registration Statement on Form S-4, Registration No. 333-01163, and incorporated herein by reference. (F) -- Amended and Restated Agreement and Plan of Merger between The Colonial BancGroup, Inc. and Southern Banking Corporation dated as of February 15, 1996 included a Exhibit 10(F) to the Registrant's Registration Statement on Form S-4, Registration No. 333-01163 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 1995 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: (A) -- Consent of Coopers & Lybrand L.L.P. Exhibit 24 -- Power of Attorney. Exhibit 27 -- Financial Data Schedule (for SEC use only)
(b) No reports on Form 8-K were filed during the last quarter of 1995. 10 12 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 22nd day of March, 1996. THE COLONIAL BANCGROUP, INC. By: /s/ ROBERT E. LOWDER ------------------------------------ Robert E. Lowder Its Chairman of the Board of Directors, Chief Executive Officer, and President 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.
SIGNATURE TITLE DATE - ---------------------------------------- ------------------------------ ---------------- /s/ ROBERT E. LOWDER Chairman of the Board of ** - ---------------------------------------- Directors, President and Robert E. Lowder Chief 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 ** - ---------------------------------------- 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 * Director ** - ---------------------------------------- Milton E. McGregor
11 13
SIGNATURE TITLE DATE - ---------------------------------------- ------------------------------ ---------------- * Director ** - ---------------------------------------- John C. H. Miller, Jr. * Director ** - ---------------------------------------- Joe D. Mussafer * Director ** - ---------------------------------------- William E. Powell * Director ** - ---------------------------------------- Jack H. Rainer * Director ** - ---------------------------------------- Frances E. Roper * Director ** - ---------------------------------------- Ed V. Welch
* 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 22, 1996 12 14 EXHIBIT INDEX Exhibit 3 -- Articles of Incorporation and Bylaws: (A) -- 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............................. (B) -- 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: (A) -- 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.......... (B) -- 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....................................... (C) -- 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.............................................................. (D) -- Trust Indenture dated as of March 25, 1986, included as Exhibit 4 to the Registrant's Amendment No. 1 to Registration Statement on Form S-2, file number 33-4004, effective March 25, 1986, and incorporated herein by reference........................................................... Exhibit 10 -- Material Contracts: (A)(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 (Commission Registration No. 33-41036), effective June 4, 1991, and incorporated herein by reference..................... (A)(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 (Commission Registration No. 33-41036), effective June 4, 1991, and incorporated herein by reference..................... (A)(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............ (A)(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..............................................................
13 15 (B)(1) -- Residential Loan Funding Agreement between Colonial Bank and Colonial Mortgage Company dated January 18, 1988, included as Exhibit 10(B)(1) to the Registrant's Registration Statement as Form S-4, file no. 33-52952, and incorporated herein by reference......................... (B)(2) -- Loan Agreement between the Registrant and SunBank, National Association, dated August 29, 1995, filed as Exhibit 10(B)(2) to the Registrant's Registration Statement on Form S-4, registration number 333-01163 and incorporated herein by reference....................................... (B)(3) -- 1993 Term Loan Agreement between the Registrant and SunBank, National Association, and related Pledge Agreement filed as Exhibit 10(B)(1) to Amendment No. 2 of the Registrant's Registration Statement on Form S-4, registration number 33-63826 and incorporated herein by reference...... (C)(1) -- 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....................................... (C)(2) -- 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........... (D) -- Stock Purchase Agreement dated as of July 20, 1994, by and among The Colonial BancGroup, Inc., Colonial Bank, The Colonial Company, Colonial Mortgage Company, and Robert E., James K. and Thomas H. Lowder, included as Exhibit 2 in Registrant's registration statement on Form S-4, Registration No. 33-83692 and incorporated herein by reference.... (E) -- Agreement and Plan of Merger between The Colonial BancGroup, Inc., and Commercial Bancorp of Georgia, Inc., dated as of December 21, 1995, filed as Exhibit 10(E) to the Registrant's Registration Statement on Form S-4, registration number 333 -01163, and incorporated herein by reference.............................................................. (F) -- Amended and Restated Agreement and Plan of Merger between The Colonial BancGroup, Inc. and Southern Banking Corporation dated as of February 15, 1996 included a Exhibit 10(F) to the Registrant's Registration Statement on Form S-4, Registration No. 333-01163 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 1995 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: (A) -- Consent of Coopers & Lybrand L.L.P....................................... Exhibit 24 -- Power of Attorney........................................................ Exhibit 27 -- Financial Data Schedule (for SEC use only)...............................
14 EX-11 2 COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT 11 THE COLONIAL BANCGROUP, INC. COMPUTATION OF EARNINGS PER SHARE
1995 1994 1993 ------- ------- ------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) A. Income before extraordinary items and the cumulative effect of a change in accounting for income taxes... $38,794 $27,310 $19,137 B. Net income............................................ 38,794 27,310 21,893 C. Interest expense on convertible debentures............ 1,660 1,702 2,386 D. Tax effect of (C) above............................... 585 589 755 E. Average primary shares outstanding(1)................. 12,418 11,996 9,530 F. Average contingent shares outstanding(2).............. 763 767 1,093 EARNINGS PER COMMON SHARE: Income before extraordinary items and the cumulative effect of a change in accounting for income taxes: Primary (A/E)............................................. $ 3.12 $ 2.28 $ 2.01 Fully diluted (A+C-D)/(E+F)............................... 3.02 2.23 1.96 Net income: Primary (B/E)............................................. $ 3.12 $ 2.28 $ 2.30 Fully diluted (B+C-D)/(E+F)............................... 3.02 2.23 2.21
- --------------- (1) Includes the effect of stock options, totaling 107,268, 117,190 and 130,568 in 1995, 1994 and 1993. (2) Includes the effect of the average contingent shares from BancGroup's two issues of convertible subordinated debentures; computed by dividing the outstanding balance of the convertible debentures, $7,483 and $9,637, by their respective conversion prices of $18.25 and $28.00 per share. Also includes an immaterial effect of stock options on a fully diluted basis. EX-12 3 RATIO OF EARNINGS 1 EXHIBIT 12 THE COLONIAL BANCGROUP, INC. RATIO OF EARNINGS TO FIXED CHARGES
1995 1994 1993 1992 1991 -------- -------- ------- ------- ------- (IN THOUSANDS) A. Income before income taxes, extraordinary items and the cumulative effect of a change in accounting for income taxes... $ 59,907 $ 41,652 $28,023 $21,267 $16,394 Fixed charges: Interest expense.......................... 132,458 82,549 59,517 60,576 81,486 1/3 Rent expense......................... 1,766 1,464 1,213 1,348 1,239 -------- -------- ------- ------- ------- B. Total fixed charges....................... 134,224 84,013 60,730 61,924 82,725 -------- -------- ------- ------- ------- C. Sum of A and B............................ $194,131 $125,665 $88,753 $83,191 $99,119 ======== ======== ======= ======= ======= Ratio of earnings to fixed charges (C/B)..................................... 1.45 1.50 1.46 1.34 1.20
EX-13 4 ANNUAL REPORT 1 EXHIBIT 13 PORTIONS OF THE 1995 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.) 2 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES - -------------------------------------------------------------------------------- SELECTED FINANCIAL DATA For the years ended December 31, 1995, 1994, 1993, 1992 and 1991 (In thousands, except per share amounts)
1995 1994 1993 1992 1991 - ------------------------------------------------------------------------------------------- STATEMENT OF INCOME Interest income $250,900 $187,230 $141,572 $130,624 $138,969 Interest expense 132,458 82,549 59,517 60,576 81,486 - ------------------------------------------------------------------------------------------- Net interest income 118,442 104,681 82,055 70,048 57,483 Provision for possible loan losses 5,480 6,481 7,945 7,979 6,364 - ------------------------------------------------------------------------------------------- Net interest income after provision for possible loan losses 112,962 98,200 74,110 62,069 51,119 Noninterest income 50,175 44,243 40,433 34,727 31,271 Noninterest expense 103,230 100,791 86,520 75,529 65,996 - ------------------------------------------------------------------------------------------- Income before income taxes 59,907 41,652 28,023 21,267 16,394 Applicable income taxes 21,113 14,342 8,886 5,715 4,175 - ------------------------------------------------------------------------------------------- Income before extraordinary items and the cumulative effect of a change in accounting for income taxes 38,794 27,310 19,137 15,552 12,219 - ------------------------------------------------------------------------------------------- Extraordinary items, net of income taxes -- (463) -- 831 Cumulative effect of a change in accounting for income taxes -- 3,219 -- -- - ------------------------------------------------------------------------------------------- Net income $ 38,794 $ 27,310 $ 21,893 $ 15,552 $ 13,050 =========================================================================================== EARNINGS PER COMMON SHARE Income before extraordinary items and the cumulative effect of a change in accounting for income taxes: Primary $ 3.12 $ 2.28 $ 2.01 $ 1.72 $ 1.37 Fully-diluted $ 3.02 $ 2.23 $ 1.96 $ 1.71 $ 1.37 Net income: Primary $ 43.12 $ 2.28 $ 2.30 $ 1.72 $ 1.47 Fully-diluted $ 43.02 $ 2.23 $ 2.21 $ 1.71 $ 1.47 Average shares outstanding: Primary 12,418 11,996 9,530 9,016 8,905 Fully-diluted 13,181 12,763 10,623 10,327 10,247 Cash dividends per common share: Common $ 0.675 Class A 0.225 $ 0.80 $ 0.71 $ 0.67 $ 0.63 Class B 0.125 $ 0.40 $ 0.31 $ 0.27 $ 0.23 ===========================================================================================
16 3 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES - ------------------------------------------------------------------------------- SELECTED FINANCIAL DATA For the years ended December 31, 1995, 1994, 1993, 1992 and 1991 (In thousands, except per share amounts)
1995 1994 1993 1992 1991 - ------------------------------------------------------------------------------------------------------------ STATEMENT OF CONDITION DATA At year-end: Total assets $3,741,217 $2,838,343 $2,822,521 $1,796,246 $1,687,177 Loans, net of unearned income 2,875,581 $2,094,028 1,771,989 1,172,151 1,093,728 Mortgage loans held for sale 110,486 60,536 361,496 144,215 105,219 Deposits 2,785,958 2,171,464 2,190,998 1,493,479 1,452,344 Long-term debt 29,038 69,042 57,397 22,979 27,225 Shareholders' equity 253,148 191,551 172,764 100,406 88,429 Average balances: Total assets $3,239,312 $2,726,710 $2,119,660 $1,764,397 $1,643,622 Interest-earning assets 2,958,204 2,458,568 1,871,254 1,540,926 1,450,115 Loans, net of unearned income 2,428,823 1,906,385 1,315,910 1,136,124 1,094,096 Mortgage loans held for sale 97,511 131,121 241,683 118,510 65,373 Deposits 2,451,253 2,158,532 1,644,658 1,476,668 1,403,538 Shareholders' equity 216,256 182,823 119,790 94,833 84,423 Book value per share at year-end $ 19.35 $ 16.08 $ 14.64 $ 11.27 $ 10.00 Tangible book value per share at year-end $ 17.34 $ 14.71 $ 13.25 $ 10.60 $ 9.21 ============================================================================================================ SELECTED RATIOS Income before extraordinary items and the cumulative effect of a change in accounting for income taxes to: Average assets 1.20% 1.00% 0.90% 0.88% 0.74% Average shareholders' equity 17.94 14.94 15.98 16.40 14.47 Net income to: Average assets 1.20 1.00 1.03 0.88 0.79 Average shareholders' equity 17.94 14.94 18.28 16.40 15.46 Efficiency ratio 60.32 66.68 69.50 70.64 72.52 Dividend payout ratio 27.12 27.21 25.33 26.85 31.60 Average equity to average total assets 6.68 6.70 5.65 5.37 5.14 Total nonperforming assets to net loans, other real estate and repossessions(*) 0.78 0.90 1.31 1.34 1.07 Net charge-offs to average loans 0.13 0.09 0.33 0.47 0.51 Allowance for possible loan losses to total loans (net of unearned income) 1.28 1.60 1.62 1.60 1.48 Allowance for possible loan losses to nonperforming loans(*) 271% 314% 347% 246% 246% ============================================================================================================
- ----------- (*) Nonperforming loans and nonperforming assets are shown as defined in Management's Discussion and Analysis of Financial Condition and Results of Operations--Nonperforming Assets on page 32. 17 4 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES - ------------------------------------------------------------------------------- SELECTED QUARTERLY FINANCIAL DATA 1995-1994 (In thousands, except per share amounts)
1995 1994 - ---------------------------------------------------------------- ------------------------------------ DEC. 31 SEPT. 30 JUNE 30 MARCH 31 DEC. 31 SEPT. 30 JUNE 30 MARCH 31 - ------------------------------------------------------------------------------------------------------ Interest income $70,667 $65,560 $60,664 $54,009 $50,870 $47,180 $45,779 $43,401 Interest expense 38,410 35,124 32,093 26,831 23,341 20,439 19,915 18,854 - ------------------------------------------------------------------------------------------------------ Net interest income 32,257 30,436 28,571 27,178 27,529 26,741 25,864 24,547 Provision for loan losses 2,050 1,265 1,098 1,067 1,767 1,818 1,448 1,448 - ------------------------------------------------------------------------------------------------------ Net interest income after provision for loan losses 30,207 29,171 27,473 26,111 25,762 24,923 24,416 23,099 Net income $10,041 $10,202 $10,250 $ 8,301 $ 6,644 $ 7,078 $ 6,740 $ 6,848 ====================================================================================================== Per common share: Net income: Primary $ 0.78 $ 0.83 $ 0.83 $ 0.69 $ 0.55 $ 0.59 $ 0.56 $ 0.57 Fully-diluted 0.75 0.80 0.80 0.67 0.54 0.58 0.55 0.56 ======================================================================================================
18 5 MANAGEMENT'S DISCUSSION AND ANALYSIS OF - -------------------------------------------------------------------------------- FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION Management's Discussion and Analysis of Financial Condition and Results of Operations is presented on the following pages. The principal purpose of this review is to provide the user of the attached financial statements and accompanying footnotes with a more detailed analysis of the financial results of The Colonial BancGroup, Inc. ("BancGroup"). Among other things, this discussion provides commentary on BancGroup's history, operating philosophies, the components of net interest margin and balance sheet strength as measured by the quality of assets, the composition of the loan portfolio and capital adequacy. BACKGROUND BancGroup (or the "Company") was established in 1981 with one bank and $166 million in assets. Through 32 acquisitions the Company has now grown to a $3.7 billion multistate bank holding company with substantial centralized operations, local lending autonomy with centralized loan review and a strong commercial lending function. During 1995 the Company acquired Colonial Mortgage Company and expanded its operations into the Atlanta, Georgia market. More importantly BancGroup's earnings per share have increased an average of 26.9% per year since 1990 and in 1995 the Company achieved a 17.94% return on average equity and a 1.20% return on average assets. BancGroup's performance goals are: 1) an annual earnings per share growth rate in excess of 10%, 2) a 17.5% return on equity, 3) a 1.45% return on assets and 4) a consistently increasing dividend. The strategies employed to achieve these results are outlined below. They represent the foundation upon which BancGroup operates and the basis for achieving the Company's goals. - - Community Bank: BancGroup operates as a community bank allowing autonomy in lending decisions and customer relationships. This operating philosophy has been important in making acquisitions, retaining a skilled and highly motivated management team and in developing a strong customer base, particularly with respect to lending relationships. - - Commercial lending primarily through groups located in the Birmingham, Huntsville, Montgomery and Anniston, Alabama metropolitan centers has been a major factor in the Company's growth. Commercial real estate and other commercial loans increased 13.1% during 1995 following a 19.4% increase in 1994. BancGroup has been very successful in competing for these loans against other larger financial institutions, due primarily to the Company's local lending strategy and management continuity. - - Consumer Real Estate: Since 1993 BancGroup has focused on residential real estate lending as a means to increase consumer lending, broaden the Company's customer base and create a significant stream of fee income. In furtherance of this goal, in February, 1995 BancGroup acquired Colonial Mortgage Company ("CMC"), one of the 70 largest mortgage loan servicers in the country. BancGroup has increased residential mortgage loans 352% from December 31, 1992 to $1.4 billion at December 31, 1995. The portfolio of mortgage loans has a relatively low credit risk and CMC's $9 billion portfolio of loans serviced for others provides a steady source of noninterest income. - - Growth Market Expansion: In October, 1995 BancGroup completed the acquisition of Mt. Vernon Financial Corporation, an Atlanta, Georgia based thrift with $225 million in assets. In addition BancGroup has signed definitive agreements to merge with Commercial Bank of Georgia, a $220 million bank in the north Atlanta area, and Southern Bank of Central Florida, a $230 million bank in Orlando, Florida. These acquisitions will provide BancGroup with a significant base of operations in the Southeast's two fastest growing markets. - - Cost Control: An operational and organizational infrastructure established in prior years has allowed the Company to grow significantly and improve the efficiency ratio from 76.69% in 1990 to 60.32% in 1995. The operating structure is built around centralized back-shop operations in areas that do not have direct customer contact. As noted above, this structure has served the Company well over the past few years and should allow for continued growth at a low marginal cost. In order to further enhance the cost efficiencies already established and position the Company for more rapid growth, in 1995 BancGroup completed a reengineering study to streamline transaction processing, increase the cost-effective use of technological resources and identify potential revenue enhancements. - - CAPITAL UTILIZATION: Management's goal is to provide a greater than 17.5% return on capital while effectively utilizing internally created capital and exceeding regulatory capital requirements. BancGroup has an asset generating capability that can effectively utilize the capital generated. This capability is most evident in the Company's 25% internal growth in loans during 1995. As part of this capability the CMC acquisition 19 6 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES - ------------------------------------------------------------------------------- provides asset generating sources for mortgage loans and mortgage servicing rights. - - Asset Quality: Maintenance of high asset quality is at the forefront of the Company's strategy to allow for consistent earnings growth. The Company's asset quality is demonstrated by its charge-off history and nonperforming asset levels, which compare favorably to its peer group. On December 31, 1993 the Company completed the acquisition of First AmFed Corporation, Huntsville, Alabama. This transaction increased total nonperforming assets in l993 by $12.8 million to 1.31% of loans and other real estate. This ratio was reduced to .78% as of December 31, 1995 primarily through sales of other real estate. Net charge-offs over the past 5 years have consistently compared favorably with the Company's peer group and were only .13% of average loans in 1995 and .09% in 1994. - - Stock Reclassification: On February 21, 1995 BancGroup reclassified its two classes of common stock into one class. This action eliminates the super voting rights of the previously existing Class B common stock and establishes the rights of all stockholders on an equal basis. Management believes the reclassification will significantly increase the market acceptance of the Company's common stock and therefore enhance its ability to expand through acquisitions. Subsequent to the reclassification, and as part of this strategy for broader market acceptance, BancGroup listed its common stock for trading on the New York Stock Exchange on February 24, 1995. Obviously the Company cannot guarantee its success in implementing the initiatives or reaching the goals set out previously. The following analysis of financial condition and results of operations provide details with respect to this summary material and demonstrates trends concerning the initiatives taken through l995. - -------------------------------------------------------------------------------- ACQUISITIONS A principal part of BancGroup's strategy is to acquire other financial institutions in order to increase the Company's market share in existing markets, expand into other growth markets, more efficiently absorb the Company's overhead and add profitable new lines of business. During 1995 BancGroup completed the following acquisitions of other financial institutions:
(Dollars in thousands) DATE BANCGROUP TOTAL TOTAL TOTAL FINANCIAL INSTITUTIONS ACQUIRED SHARES ASSETS LOANS DEPOSITS ------------------------------------------------------------------------------- Colonial Mortgage Company 02/17/95 2,272,727 $ 71,000 $ 1,675 $ 0 Brundidge Banking Company 03/31/95 266,434 56,609 31,577 46,044 Mt. Vernon Financial Corp. 10/20/95 521,720 217,967 192,167 156,356 Farmers & Merchants Bank 11/03/95 256,843 56,050 25,342 45,448 ===============================================================================
The acquisition of Colonial Mortgage Company was accounted for using a method of accounting similar to a pooling of interest, and the Company's financial statements have been restated to reflect the pooling, as if it had occurred as of the earliest date presented. The other three 1995 acquisitions were accounted for as purchases, and the operations and income of the acquired institutions are included in the income of BancGroup from the date of purchase. Each of the acquired institutions that were accounted for as purchases was merged into Colonial BancGroup or one of its subsidiaries as of the listed dates, and the income and expenses have not been separately accounted for since the respective mergers. For this reason and due to the fact that significant changes have been made to the cost structure of each acquired institution, a separate determination of the impact after acquisition of earnings of BancGroup for 1994 and 1995 cannot reasonably be determined. The acquisitions have had an impact on the comparisons of operating results for 1994 and 1995 with prior years. Where such information is determinable it has been identified and discussed in the discussion of results of operations and financial condition that follows. 20 7 COLONIAL MORTGAGE COMPANY On February 17, 1995 BancGroup completed the acquisition of Colonial Mortgage Company. This acquisition represents a major step in achieving several BancGroup strategic goals. A principal initiative of BancGroup for the past several years has been to increase fee income through establishment of additional lines of business that provide natural extensions of existing products or services. CMC in this regard provides an excellent fit for the following reasons: FEE INCOME CMC, at December 31, 1995, provided servicing for approximately 118,000 customers with a total outstanding balance of $9.1 billion. The servicing revenues from this portfolio plus other fee income from CMC provided approximately 50% of BancGroup's noninterest income in 1995 and 1994. CONSUMER REAL ESTATE LENDING CMC, through its wholesale and retail offices, originated over $5 billion in residential real estate loans from 1993 through 1995. These loans have primarily been fixed rate loans sold into the secondary markets. However, since the latter part of 1994 Colonial Bank has been acquiring adjustable rate mortgage (ARM) loans originated by CMC. This program provides CMC additional loan products for its branch network. In addition, CMC provides the Bank with fixed rate loan products for its customers. GROWTH MARKET EXPANSION CMC currently originates residential mortgages in 29 states through 6 regional offices and services 118,000 customers located in 35 states. These locations provide BancGroup with a broader market base to solicit business and include areas which currently have greater growth rates than BancGroup's existing branch locations. These areas include Atlanta, Cincinnati, Dallas, Seattle, Denver, Milwaukee and Phoenix. CAPITAL UTILIZATION CMC's growth has previously been somewhat limited due to its ownership structure as part of a private company. The combination of BancGroup and CMC provides additional resources for the expansion of CMC's low cost servicing operation through bulk purchases of servicing. In addition CMC provides another source of loans for the Bank's portfolio including ARM loans and equity lines. CUSTODIAL DEPOSITS CMC maintains custodial accounts for its loan customers for the payment of taxes and insurance as well as collection of principal and interest. The balances in these accounts averaged approximately $121 million and $94 million in 1995 and 1994, respectively. These balances, most of which were in other financial institutions in 1994, have been deposited into Colonial Bank in 1995. As a result these balances represent 25% of the 37% increase in average noninterest bearing demand deposits from 1994 to 1995. These balances have a positive impact on BancGroup's net interest margin by providing a noninterest bearing source of funds. CONTINUITY AND CONSISTENCY OF MANAGEMENT Robert E. Lowder, Chairman and CEO of BancGroup has been Chairman and CEO of CMC for 25 years. In addition, Ronnie Wynn has been the president of CMC for 19 years and is a former president of the Mortgage Bankers Association of America. This continuation of management has provided a very smooth transition in management and operating philosophy. CROSS-SELLING OF CUSTOMERS BancGroup has established a personal banking unit to solicit other business from CMC customers, such as equity lines and deposits. In addition, BancGroup plans to expand other customer relationships through establishment of deposit relationships with CMC customers, acceptance of CMC payments in branches, and establishing a linkage between construction and permanent lending. 21 8 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES - ------------------------------------------------------------------------------- REVIEW OF RESULTS OF OPERATIONS OVERVIEW
The major components of BancGroup's net income are: (In thousands) 1995 1994 1993 ---------------------------------------------------------------------- Net interest income $118,442 $104,681 $82,055 Provision for possible loan losses (5,480) (6,481) (7,945) Noninterest income 50,175 44,243 40,433 Noninterest expense (103,230) (100,791) (86,520) ---------------------------------------------------------------------- Pretax income 59,907 41,652 28,023 Taxes (21,113) (14,342) (8,886) ---------------------------------------------------------------------- Income before extraordinary items and the cumulative effect of a change in accounting for income taxes 38,794 27,310 19,137 Extraordinary loss -- -- (463) Cumulative effect of accounting change -- -- 3,219 ---------------------------------------------------------------------- Net income $ 38,794 $ 27,310 $ 21,893 ----------------------------------------------------------------------
Consistently increasing net income is a primary goal of management. Earnings (income before extraordinary items and accounting changes) increased 42% in 1995, 43% in 1994 and 23% in 1993. The most significant factors affecting income for 1995, 1994 and 1993 are high-lighted below and discussed in greater detail in subsequent sections. - - An increase in 1995 of 20.3% in average earning assets. This follows an increase of 31.4% in 1994. - - An increase of $5.9 million (13%) and $3.8 million (9%) in noninterest income in 1995 and 1994, respectively. - - Maintenance of high asset quality and reserve coverage ratios. Net charge-offs were $3.1 million or .13% of average net loans in 1995 and $1.7 million or .09% of average net loans in 1994. In recognition of these low net charge-offs loan loss provisions were reduced $1.5 million in 1994 and $1 million in 1995. - - Loan growth, excluding acquisitions, of 25% in 1995 following an increase of 18% in 1994. - - An increase in loans as a percent of average earning assets to 82.1% in 1995 from 77.5% in 1994. - - Noninterest expenses as a percent of average assets were reduced to 3.19% in 1995 from 3.70% in 1994. - - 1993 includes a $463,000 extraordinary loss from the early redemption of subordinated convertible debt and $3,219,000 in income from the cumulative effect of a change in accounting for income taxes. NET INTEREST INCOME Net interest income is the difference between interest and fees earned on loans, securities and other interest-earning assets (interest income) and interest paid on deposits and borrowed funds (interest expense). Three year comparisons of net interest income in dollars and yield on a tax equivalent basis are reflected on the following schedule on page 24. The net yield on interest-earning assets was 4.09% in 1995 compared to 4.35% in 1994 and 4.49% in 1993. Over this period net interest income on a fully tax equivalent basis increased to $121.0 million in 1995 from $106.9 million in 1994 and $84.1 million in 1993. The principal factors affecting the Company's yields and net interest income are discussed in the following paragraphs. LEVELS OF INTEREST RATES After declining consistently from 1989 through 1992 and remaining virtually flat throughout 1993, short-term interest rates increased dramatically in 1994 and continued to increase into late 1995 before starting to decline. For example, the average fed funds rate for overnight bank borrowing was 2.99% in December 1993, 5.45% in December 1994 and reached 6.00% in 1995 before decreasing to 5.50% in December 1995. The Company's prime rate increased from 6.0% in 1993 to 8.5% in 1994 and continued to increase to 9.0% midyear 1995 before declining to 8.5% in December 1995. Long-term rates declined throughout 1995, with the 30-year treasury bond ending 1994 at 7.93% and declining to 5.95% in December 1995. Net interest margin remained virtually flat from 1993 to 1994, while increasing competitive pressures resulted in an increase in cost of funds in 1995. This increase along with a change in the Company's loan mix is primarily responsible for the decreases in margin from 4.34% in the first quarter of 1995 to 3.95% in the fourth quarter of 1995. ACQUISITIONS The thrift acquisitions completed during 1993 and 1995 had a negative impact on the Company's net interest yield due primarily to the fact that these institutions had virtually no noninterest-bearing deposits. The rates on the interest-bearing deposits in the acquired institutions were slightly higher than the Company's rates and were adjusted to BancGroup products and rates within a short time after the mergers. INTEREST-BEARING LIABILITIES - - COST OF FUNDS Rates paid on new time deposits and variable rate deposits increased during 1994 and continued to increase through 1995. Competitive pressures on these deposit rates increased in 1995 resulting in a higher cost of funds from 3.83% for 1994 to 5.23% for 1995. 22 9 INTEREST-EARNING ASSETS - GROWTH IN EARNING ASSETS One of the most significant factors in the Company's increase in income for 1995 has been the 20.3% increase in average interest-earning assets. This follows a 31.4% increase in 1994. In addition and equally significant, net loans increased $782 million (37.3%) from December 31, 1994 to December 31, 1995. Earning assets as a percentage of total average assets also increased from 88.3% in 1993 to 90.2% in 1994 to 91.3% in 1995. - MORTGAGE LOANS HELD FOR SALE The level and direction of long-term interest rates had a dramatic impact on the volume of mortgage loan originations, causing the average balance of mortgage loans for sale to decline from $242 million in 1993 to $98 million in 1995. Mortgage loans held for sale represent single family residential mortgage loans originated or acquired by Colonial Mortgage then packaged and sold in the secondary market. Colonial Mortgage incurs gains or losses associated with rate fluctuations. Colonial Mortgage limits its risk associated with the sale of these loans through an active hedging program which generally provides for sales commitments on all loans funded. Mortgage loans held for sale are funded primarily with short-term borrowings. - CHANGING LOAN MIX During 1995 all categories of loans increased. The most significant increase was in residential real estate loans increasing from 40.9% of total loans at December 31, 1994 to 49.1% at December 31, 1995. These loans are predominantly adjustable rate mortgages which have a low level of credit risk and accordingly have lower yields than other loans. 23 10 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES - ------------------------------------------------------------------------------- AVERAGE VOLUME AND RATES
1995 1994 1993 ------------------------------ ------------------------------ ------------------------------- Average Average Average Average Average Average (In thousands) Volume Interest Rate Volume Interest Rate Volume Interest Rate - ------------------------------------------------------------------------------------------------------------------------------------ ASSETS: Interest-earning assets: Loans, net of unearned income (1) $2,428,823 $218,735 9.01% $1,906,385 $155,385 8.15% $1,315,910 $107,673 8.18% Mortgage loans held for sale 97,511 7,301 7.49 131,121 10,313 7.87 241,683 17,737 7.34 Investment securities and securities available for sale: Taxable 348,270 21,063 6.05 334,200 18,288 5.47 246,898 13,882 5.62 Nontaxable (2) 43,143 3,361 7.79 38,623 2,967 7.68 29,249 2,505 8.56 Equity securities (3) 30,595 2,323 7.59 36,196 2,032 5.61 26,307 1,423 5.41 - ----------------------------------------------------------- ---------- -------------------- Total investment securities 422,008 26,747 6.34% 409,019 23,287 5.69% 302,454 17,810 5.89% Federal funds sold and securities purchased under resale agreements 5,936 354 5.96 5,380 186 3.46 8,077 247 3.05 Interest-earning deposits 3,926 289 7.36 6,663 293 4.40 3,130 104 3.32 - ----------------------------------------------------------- -------------------- -------------------- Total interest-earning assets 2,958,204 $253,426 8.57% 2,458,568 $189,464 7.71% 1,871,254 $143,571 7.67% - ----------------------------------------------------------- -------------------- -------------------- Allowance for loan losses (35,085) (31,267) (22,320) Cash and due from banks 117,338 107,209 90,511 Premises and equipment, net 48,480 45,765 36,612 Other assets 150,375 146,435 143,603 - ------------------------------------------------- ---------- ---------- TOTAL ASSETS $3,239,312 $2,726,710 $2,119,660 - ------------------------------------------------- ---------- ---------- LIABILITIES AND SHAREHOLDERS' EQUITY: Interest-bearing liabilities: Interest-bearing demand deposits $ 425,071 $ 12,963 3.05% $ 491,671 $ 13,521 2.75% $ 404,517 $ 11,099 2.74% Savings deposits 264,683 9,832 3.71% 279,554 8,681 3.11% 222,466 6,582 2.96% Time deposits 1,314,701 76,696 5.82% 1,062,219 46,461 4.37% 744,071 32,774 4.40% Short-term borrowings 477,785 29,231 6.12% 235,598 10,425 4.42% 195,752 6,268 3.20% Long-term debt 48,683 3,736 7.68% 83,858 3,461 4.13% 56,339 2,794 4.96% - ----------------------------------------------------------- -------------------- -------------------- Total interest-bearing liabilities 2,530,923 $132,458 5.23% 2,152,900 $ 82,549 3.83% 1,623,145 $ 59,517 3.67% - ----------------------------------------------------------- -------------------- -------------------- Noninterest-bearing demand deposits 446,798 325,088 273,604 Other liabilities 45,335 65,899 103,121 - ------------------------------------------------- ---------- ---------- Total liabilities 3,023,056 2,543,887 1,999,870 Shareholders' equity 216,256 182,823 119,790 - ------------------------------------------------- ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $3,239,312 $2,726,710 $2,119,660 - ------------------------------------------------------------------------------------------------------------------------------------ RATE DIFFERENTIAL 3.34% 3.88% 4.00% NET INTEREST INCOME AND NET YIELD ON INTEREST- EARNING ASSETS (4) $120,968 4.09% $106,915 4.35% $ 84,054 4.49% - ------------------------------------------------------------------------------------------------------------------------------------
(1) Loans classified as nonaccruing are included in the average volume calculation. Interest earned and average rates on non-taxable loans are reflected on a tax equivalent basis. This interest is included in the total interest earned for loans. Tax equivalent interest earned is actual interest earned times 145%. (2) Interest earned and average rates on obligations of states and political subdivisions are reflected on a tax equivalent basis. Tax equivalent interest earned is actual interest earned times 145%. Tax equivalent average rate is tax equivalent interest earned divided by average volume. (3) Dividends earned and average rates on preferred stock are reflected on a tax equivalent basis. Tax equivalent dividends earned are actual dividends times 137.7%. Tax equivalent average rate is tax equivalent dividends divided by average volume. (4) Net interest income divided by average total interest-earning assets. 24 11 ANALYSIS OF INTEREST INCREASES (DECREASES)
1995 Change From 1994 1994 Change From 1993 -------------------------------- ------------------------------ Due to (1) Due to (1) ------------------ ---------------- (In thousands) Amount Volume Rate Amount Volume Rate - ----------------------------------------------------------------------------------------------------- Interest income: Taxable securities $ 2,775 $ 789 $ 1,986 $ 4,406 $ 4,785 $ (379) Nontaxable securities (2) 394 351 43 462 739 (277) Dividends on preferred stocks (3) 291 (348) 639 609 554 55 - ----------------------------------------------------------------------------------------------------- Total securities 3,460 792 2,668 5,477 6,078 (601) Total loans (net of unearned income) 63,350 45,738 17,612 47,712 48,109 (397) Mortgage loans held for sale (3,012) (2,535) (477) (7,424) (8,625) 1,201 Federal funds sold and securities purchased under resale agreements 168 21 147 (61) (90) 29 Interest-earning deposits (4) (151) 147 189 146 43 - ----------------------------------------------------------------------------------------------------- Total 63,962 43,865 20,097 45,893 45,618 275 - ----------------------------------------------------------------------------------------------------- Interest expense: Interest-bearing demand deposits (558) (1,943) 1,385 2,422 2,382 40 Savings deposits 1,151 (476) 1,627 2,099 1,753 346 Time deposits 30,235 12,619 17,616 13,687 13,911 (224) Short-term borrowings 18,806 13,686 5,120 4,157 1,447 2,710 Long-term debt 275 (1,863) 2,138 667 1,194 (527) - ----------------------------------------------------------------------------------------------------- Total 49,909 22,023 27,886 23,032 20,687 2,345 - ----------------------------------------------------------------------------------------------------- Net interest income $14,053 $21,842 $(7,789) $22,861 $24,931 $(2,070) - -----------------------------------------------------------------------------------------------------
- ---------- (1) Increases (decreases) are attributed to volume changes and rate changes on the following basis: Volume Change = change in volume times old rate. Rate Change = change in rate times old volume. The Rate/Volume Change = change in volume x change in rate, and it is allocated between Volume Change and Rate Change at the ratio that the absolute value of each of those components bear to the absolute value of their total. (2) Interest earned and average rates on obligations of states and political subdivisions are reflected on a tax equivalent basis. Tax equivalent interest earned as actual interest earned times 145%. Tax equivalent average rate is tax equivalent interest earned divided by average volume. (3) Dividends earned and average rates on preferred stock are reflected on a tax equivalent basis. Tax equivalent dividends earned are actual dividends times 137.7%. Tax equivalent average rate is tax equivalent dividends divided by average volume. ================================================================================ NONINTEREST INCOME BancGroup derives approximately 50% of its noninterest income from mortgage banking related activities with the remaining 50% from traditional retail banking services including various deposit account charges, safe deposit box rentals and credit life commissions. Prior to the CMC acquisition on February 17, 1995, BancGroup had not acquired other well-established ancillary income sources, such as trust operations, mortgage banking or credit card services with any of its acquisitions. One of the most important goals from 1993 through 1995 has been to increase noninterest income. The impact of this acquisition is evident by the volume of revenue included in the category entitled mortgage servicing fees. CMC has servicing and subservicing agreements under which it services 118,000, 83,000 and 68,000 mortgage loans with principal balances of $9.1 billion, $6.4 billion and $4.6 billion on December 31, 1995, 1994 and 1993, respectively. This servicing portfolio generated servicing fee and late charge income of approximately $23.4 million, $18.1 million and $12.0 million for the years ended December 31, 1995, 1994 and 1993, respectively. CMC through its wholesale and retail offices, originated $1.1 billion, $1.2 billion and $2.6 billion in residential real estate loans in 1995, 1994, and 1993, respectively. The increased volume in 1993 was primarily due to lower long-term interest rates which resulted in increased mortgage lending activity. Noninterest income from deposit accounts is significantly affected by competitive pricing on these services and the volume of noninterest-bearing accounts. During 1995 and 1994 average noninterest demand accounts (excluding CMC custodial deposits) increased 11.8% and 18.8%, respectively. This increase in volume and increases in service fee rates resulted in a 15% increase in service charge income in 1995 and a 12% increase in 1994. Other charges, fees, and commissions increased $411,000 (13%) in 1995 and $889,000 (40%) in 1994. The increase is primarily from credit card related fees, official check commissions and credit life commissions on residential mortgage and consumer loans. Acquisitions 25 12 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES - ------------------------------------------------------------------------------ have had a minimal impact on income in this area with most of the increase due to an emphasis on bottom line income as a result of the Company's incentive plan. The Company through CMC enters into offers to extend credit for mortgage loans to customers and into obligations to deliver and sell originated or acquired mortgage loans to permanent investors. Sales of loans servicing released resulted in income of $988,000, $539,000 and $1,820,000 for 1995, 1994 and 1993, respectively. The remaining increase in other income of $1,953,000 from 1994 to 1995 is due primarily to a gain on sale of servicing as well as increases in income from safe deposit boxes, ATM transaction fees and various other sources with off-setting decreases in gain on sale of fixed assets and income from investment sales. BancGroup has an investment sales operation (primarily mutual funds and annuities). Fee income generated from this and other investment services activities totaled $649,000, $990,000 and $770,000 in 1995, 1994 and 1993, respectively. The increase in other income in 1994 was primarily due to the investment sales programs as previously indicated and a gain on sale of fixed assets with various other smaller decreases. Securities gains and losses in each of the three years were not significant. While certain securities are considered available for sale, BancGroup currently intends to hold substantially all of its securities portfolio for investment purposes. Realized gains or losses in this portfolio are generally the result of calls of securities or sales of securities within the six months prior to maturity.
======================================================================================================== Increase (Decrease) ---------------------------- Years ended December 31 1995 1994 --------------------------- Compared Compared (In thousands) 1995 1994 1993 to 1994 % to 1993 % - -------------------------------------------------------------------------------------------------------- Noninterest income: Mortgage servicing $23,429 $22,216 $21,079 $1,213 5% $1,137 5% Service charges on deposit accounts 14,203 12,384 11,104 1,819 15 1,280 12 Other charges, fees and commissions 3,545 3,134 2,245 411 13 889 40 Other income 8,751 6,349 6,330 2,402 38 19 -- - ---------------------------------------------------------------- ------ ------ Subtotal 49,928 44,083 40,758 5,845 13 3,325 8 Other noninterest income items: Securities gains, net 5 84 49 (79) 35 Gain (loss) on disposal of other real estate and repossessions 242 76 (374) 166 450 - ---------------------------------------------------------------- ------ ------ Total noninterest income $50,175 $44,243 $40,433 $5,932 13% $3,810 9% - ---------------------------------------------------------------- ------ ------ ========================================================================================================
NONINTEREST EXPENSE The impact of the acquisitions completed from 1993 through 1995 is reflected most noticeably in the increase in net interest income, discussed previously, as well as the 19% increase from 1993 to 1995 in noninterest expense as shown in the schedule following. These acquisitions have been the most significant factor in the increase in numbers of branches from 72 at December 31, 1992 to 102 at December 31, 1995. The decrease in noninterest expense as a percent of average assets from 4.08% in 1993 to 3.70% in 1994 to 3.19% in 1995 is a direct result of the increased efficiency generated by this growth. The foundation for the efficiencies gained in 1995 and 1994 was laid in 1989 and 1990 when the Company established its current operating structure (regional and community banks supported by centralized backshop operations). Salaries and benefits decreased $3.6 million or 8% in 1995 and increased $4.9 million or 13% in 1994. The decrease in 1995 is primarily due to increased deferred cost associated with loan originations discussed in a following paragraph and a reduction in certain staffing levels throughout BancGroup, particularly at CMC as a result of the decline in origination activity discussed earlier that began in 1994. The incentive plan has been a major factor in the Company's ability to contain cost and increase income. The increase in 1994 was primarily due to acquisitions and other expansion efforts. In addition to the increase in expenses related to growth, advertising and public relations expenses have increased $1,007,000 or 39% and $1,006,000 or 64% in 1995 and 1994, respectively, in concentrated efforts to expand the Company's customer base and take advantage of increased market share in certain key markets. Other expenses in 1995, 1994 and 1993 include approximately $ 500,000, $1,200,000 and $960,000, respectively associated with various acquisition efforts. As discussed in Note 1 to BancGroup's Consolidated Financial Statements, BancGroup defers certain salary and benefit costs associated with loan originations and amortizes these costs as yield adjustments over the life of the related loans. The amount of costs deferred increased from $3,989,000 in 1993 to $4,717,000 in 1994 and $8,907,000 in 1995 due to changes in the mix of loans and increases in the num- 26 13 ber of loans closed. Cost control and the capacity to absorb future growth continue to be a major focus for management. The Company has taken several steps to achieve this goal and to attempt to improve BancGroup's efficiency ratio. The incentive plan and its profit-based rewards represent a key element in the plan. During 1994 BancGroup also increased its data processing capacity through a major upgrade. The cost of this upgrade is reflected in equipment expenses in 1994 and 1995. Finally, and most importantly, in 1995 the Company invested in a reengineering study. This study reviewed the Company's retail delivery systems to better position the company for future growth, product expansion and customer service. The cost of the study (approximately $2 million) was included in other expense. The study had some impact on 1995 through lower salary cost and increased fee income with the major impact to be achieved in 1996. The Company's deposits are insured by the Federal Deposit Insurance Corporation in two separate funds; the Bank Insurance Fund (BIF) and the Savings Association Insurance Fund (SAIF). Legislation has been proposed in Congress to recapitalize the SAIF with a special one-time charge estimated to range between .78% and .85% of the deposits insured by SAIF. This recapitalization would allow a reduction in the current .23% average annual premium rate. BancGroup has approximately $679 million in SAIF deposits, after adjusting for certain allowances in the current proposal, which would be subject to the special assessment. Management cannot determine if or when a special assessment may actually be imposed.
============================================================================================================== Increase (Decrease) 1995 1994 Years ended December 31 Compared Compared (In thousands) 1995 1994 1993 to 1994 % to 1993 % - -------------------------------------------------------------------------------------------------------------- Noninterest expense: Salaries and employee benefits $ 39,786 $ 43,355 $38,453 ($3,569) (8%) $ 4,902 13% Net occupancy expense 9,005 8,610 7,302 395 5 1,308 18 Furniture and equipment expense 8,504 7,468 6,452 1,036 14 1,016 16 Amortization of intangible assets 1,324 1,196 818 128 11 378 46 Amortization of mortgage servicing rights 9,095 6,078 4,840 3,017 50 1,238 26 FDIC assessment 3,323 4,643 3,527 (1,320) (28) 1,116 32 Stationery, printing and supplies 2,588 2,703 2,692 (115) (4) 11 -- Postage 1,884 1,609 1,514 275 17 95 6 Telephone 3,129 2,834 2,539 295 10 295 12 Insurance 1,306 1,645 1,410 (339) (21) 235 17 Legal fees 2,081 2,635 1,690 (554) (21) 945 56 Advetising and public relations 3,592 2,585 1,579 1,007 39 1,006 64 Other 17,613 15,430 13,704 2,183 14 1,726 13 - ----------------------------------------------------------------------------- --------- Total noninterest expense $103,230 $100,791 $86,520 $2,439 2% $14,271 16% - ----------------------------------------------------------------------------- --------- Noninterest expense to Average Assets 3.19% 3.70% 4.08% ==============================================================================================================
INCOME TAXES The provision for income taxes and related items are as follows: TAX CUMULATIVE EFFECT OF PROVISION ACCOUNTING CHANGE - --------------------------------------------------------------------------- 1995 $21,113,000 -- 1994 14,342,000 -- 1993 8,886,000 $3,219,000
BancGroup is subject to federal and state taxes at combined rates of approximately 38% for regular tax purposes and 23% for alternative minimum tax purposes. These rates are reduced or increased for certain nontaxable income or nondeductible expenses, primarily consisting of tax exempt interest income, partially taxable dividend income, and nondeductible amortization of goodwill. In 1993 the Company adopted Financial Accounting Standards Board Statement No. 109 which requires an asset and liability approach for financial accounting and reporting for income taxes. The impact of the adoption of this statement was the recognition in the first quarter of 1993 of income in the amount of $3,219,000, which is shown in the financial statements as the cumulative effect of a change in accounting for income taxes. Also in 1993, the Omnibus Reconciliation Act of 1993 effectively increased the Company's Federal tax rate by 1% to 35% based on taxable income. Management's goal is to minimize income tax expense and maximize cash yield on earning assets by increasing or decreasing its tax exempt securities and/or investment in preferred and common stock. Accordingly, BancGroup's investment in tax exempt securities was increased in 1993, 1994 and 1995. 27 14 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES - -------------------------------------------------------------------------------- REVIEW OF FINANCIAL CONDITION OVERVIEW Ending balances of selected components of the Company's balance sheet changed from December 31, 1994 to December 31, 1995 as follows:
(In thousands) Increase (Decrease) - ----------------------------------------------------- Amount % ===================================================== Total assets $902,874 31.8 Securities available for sale and investment securities 24,492 6.0 Mortgage loans held for sale 49,950 82.5 Loans, net of unearned income 781,878 37.3 Deposits 614,494 28.3 - -----------------------------------------------------
Management continuously monitors the financial condition of BancGroup in order to protect depositors, increase shareholder value and protect current and future earnings. The most significant factors affecting BancGroup's financial condition from 1993 through 1995 have been: - An increase in residential mortgage loans from 26.7% of total loans at December 31, 1992 to 49.1% at December 31, 1995. This increase has resulted from the acquisition of thrifts as well as from loans CMC produced for the Company's portfolio. BancGroup has continued to place emphasis on these loans as a major product line which has a relatively low loss ratio. - Internal loan growth of 25% in 1995 excluding acquisitions. - A 37.4% increase in 1995 in average noninterest bearing demand deposits with 25.6% of the increase from CMC custodial deposits and the remainder substantially from internal growth. - Maintenance of high asset quality and reserve coverage of nonperforming assets. Nonperforming assets were .78%, .90% and 1.31% of related assets at December 31, 1995, 1994 and 1993. Net charge-offs were .13%, .09% and .33% of average loans over the same periods. The allowance for possible loan losses was 1.28% at December 31, 1995, providing 271% coverage of non-performing loans (nonaccrual and renegotiated). - Increase in tier one leverage ratios from 5.59% at December 31, 1993 to 6.19% at December 31, 1995. - An increase in the loan to deposit ratio from 96.4% at December 31, 1994 to 103.2% at December 31, 1995. Federal Home Loan Bank borrowings continue to be a major source of funding allowing the Company greater funding flexibility. - Increase of $50 million in mortgage loans held for sale primarily as a result of decreases in long-term interest rates in late 1995. These items, as well as a more detailed analysis of BancGroup's financial condition, are discussed in the following sections. - ------------------------------------------------------------------------------- LOANS Growth in loans and maintenance of a high quality loan portfolio are the principal ingredients to improved earnings. This goal is achieved in various ways as outlined below: - Management's emphasis, within all of BancGroup's banking regions, is on loan growth in accordance with local market demands and the lending experience and expertise in the regional and county banks. The regional banks are diverse in the loan demands of their areas and in their lending expertise, resulting in a fairly diversified portfolio without significant concentration of risk. - Management believes that its strategy of meeting local demands and utilizing local lending expertise has proven successful. Management also believes that any existing concentrations of loans, whether geographically, by industry or by borrower do not expose BancGroup to unacceptable levels of risk. - BancGroup has a significant concentration of residential real estate loans representing 49.1% of total loans. These loans are substantially all mortgages on single-family, owner occupied properties and therefore have minimal credit risk. While a major portion of these loans was acquired with the thrift acquisitions, the Company has continued to grow this portfolio with a $554 million or 65% increase in these loans in 1995. A portion of this growth, approximately $246 million, is due to adjustable rate mortgages originated by CMC and acquired by Colonial Bank. Residential mortgage loans are predominately adjustable rate loans and therefore have not resulted in any material change in the Company's rate sensitivity. 28 15 - The most significant industry concentration is in loans collateralized by commercial real estate with loan balances of $623,805,000, $574,155,000, $480,071,000, $376,000,000, and $312,346,000, at December 31, 1995, 1994, 1993, 1992 and 1991, respectively. BancGroup's commercial real estate loans are spread geographically throughout Alabama and other areas with no more than 30% of these loans in any one geographic area. The Alabama economy experiences a generally slow but steady rate of growth. For this reason, real estate values have not been inflated due to excessive speculation and BancGroup's real estate related loans continue to perform at acceptable levels. - BancGroup makes mortgage loans on a short-term basis (generally less than ninety days) while these loans are being packaged for sale in the secondary market. These loans are classified as mortgage loans held for sale with balances totaling $110,486,000, $60,536,000, $361,496,000, $144,215,000 and $105,219,000 at December 31, 1995, 1994, 1993, 1992 and 1991, respectively. There is minimal credit risk associated with these loans. During 1991, 1992 and 1993 the total balances invested in these types of loans increased significantly due primarily to large volumes of mortgage refinancing. The decrease in mortgage loans held for sale during 1994 and subsequent increase in 1995 are directly related to the fluctuation in long-term interest rates and its related impact on refinancing. These loans are funded principally with short-term borrowings, providing a relatively high margin for these funds. - As discussed more fully in subsequent sections, management has determined to maintain adequate liquidity and liquidity sources. BancGroup has arranged funding sources in addition to customer deposits which provide the capability for the Company to exceed a 100% loan to deposit ratio and maintain adequate liquidity. - Internal loan growth has been a major factor in the Company's increasing earnings with growth rates of 25% in 1995, 18.2% in 1994, 11.4% in 1993 and 7.0% in 1992 excluding acquisitions. - ------------------------------------------------------------------------------- GROSS LOANS BY CATEGORY
(In thousands) December 31 - ------------------------------------------------------------------------------------------------------------- 1995 1994 1993 1992 1991 ============================================================================================================= Commercial, financial and agricultural $ 362,991 $ 298,708 $ 250,746 $ 198,033 $ 241,824 Real estate--commercial 623,805 574,155 480,071 376,000 312,346 Real estate--construction 234,487 152,423 135,762 108,578 70,204 Real estate--residential 1,411,380 857,639 717,354 312,505 269,532 Installment and consumer 199,481 169,577 153,273 135,675 158,445 Other 43,667 41,577 34,954 39,816 42,064 - ------------------------------------------------------------------------------------------------------------- Total loans $2,875,811 $2,094,079 $1,772,160 $1,170,607 $1,094,415 ============================================================================================================= ============================================================================================================= Percent of loans in each category to total loans: Commercial, financial and agricultural 12.6% 14.3% 14.2% 16.9% 22.1% Real estate--commercial 21.7 27.4 27.1 32.2 28.6 Real estate--construction 8.2 7.3 7.7 9.2 6.4 Real estate--residential 49.1 40.9 40.4 26.7 24.6 Installment and consumer 6.9 8.1 8.6 11.6 14.5 - ------------------------------------------------------------------------------------------------------------- Other 1.5 2.0 2.0 3.4 3.8 100.0% 100.0% 100.0% 100.0% 100.0% =============================================================================================================
As discussed in a subsequent section, BancGroup seeks to maintain adequate liquidity and minimize exposure to interest rate volatility. The goals of BancGroup with respect to loan maturities and rate sensitivity have been and will continue to be to focus on shorter term maturities and floating or adjustable rate loans. At December 31, 1995, approximately 55% of loans were floating rate or adjustable rate loans compared to 54% at December 31, 1994. Contractual maturities may vary significantly from actual maturities due to loan extensions, early payoffs due to refinancing and other factors. Fluctuations in interest rates are also a major factor in early loan pay-offs. The uncertainties, particularly with respect to interest rates, of future events make it difficult to predict the actual maturities. BancGroup has not maintained records related to trends of early pay-off since management does not believe such trends would present any significantly more accurate estimate of actual maturities than the contractual maturities presented. 29 16 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES - -------------------------------------------------------------------------------- LOAN MATURITY/RATE SENSITIVITY
(In thousands) December 31, 1995 ========================================================================================================== Rate Sensitivity, Loans Maturing Maturing Rate Sensitivity Over 1 Year -------------------------------- -------------------- -------------------- Within 1-5 Over 1 Year Years 5 Years Fixed Floating Fixed Floating ========================================================================================================== Commercial, financial, and agricultural $187,483 $ 128,379 $ 47,129 $ 169,283 $ 193,708 $106,911 $ 68,597 Real estate--commercial 139,860 392,463 91,482 368,842 254,963 307,508 176,437 Real estate--construction 138,561 56,782 39,144 59,146 175,341 33,148 62,778 Real estate--residential 161,288 419,961 830,131 488,288 923,092 367,393 882,699 Installment and consumer 101,755 91,320 6,406 165,820 33,661 80,504 17,222 Other 6,368 5,212 32,087 29,697 13,970 23,932 13,367 - ---------------------------------------------------------------------------------------------------------- Total loans $735,315 $1,094,117 $1,046,379 $1,281,076 $1,594,735 $919,396 $1,221,100 ==========================================================================================================
LOAN QUALITY A major key to long-term earnings growth is maintenance of a high quality loan portfolio. BancGroup's directive in this regard is carried out through its policies and procedures for review of loans and through a company wide senior credit administration function. This function participates in the loan approval process with the regional banks and provides an independent review and grading of loan credits on a continual basis. BancGroup has standard policies and procedures for the evaluation of new credits, including debt service evaluations and collateral guidelines. Collateral guidelines vary with the credit worthiness of the borrower, but generally require maximum loan-to-value ratios of 85% for commercial real estate and 90% for residential real estate. Commercial, financial and agricultural loans are generally collateralized by business inventory, accounts receivables or new business equipment at 50%, 80% and 90% of estimated value, respectively. Installment and consumer loan collateral where required is based on 90% loan to value ratios. Based on the above policies, procedures and loan review program, BancGroup determines its allowance for possible loan losses and the amount of provision for loan losses. The allowance for possible loan losses is maintained at a level which, in management's opinion, is adequate to absorb potential losses on loans present in the loan portfolio. The amount of the allowance is affected by: (1) loan charge-offs, which decrease the allowance; (2) recoveries on loans previously charged-off, which increase the allowance; (3) the provision for possible loan losses charged to income, which increases the allowance, and (4) the allowance for loan losses of acquired banks. In determining the provision for possible loan losses in an effort to evaluate portfolio risks, it is necessary for management to monitor fluctuations in the allowance resulting from actual charge-offs and recoveries and to periodically review the size and composition of the loan portfolio in light of current and anticipated economic conditions. The goal and result of these policies and procedures is to provide a sound basis for new credit extensions and an early recognition of problem assets to allow the most flexibility in their timely disposition. LOAN LOSS EXPERIENCE During 1995 the ratio of net charge-offs to average loans increased to .13% from .09% in 1994. This increase has been impacted by the increase in average loans but also by an increase of approximately $1.4 million in actual net charge-offs. Net charge-offs as a percent of net loans for the past five years have fluctuated from a high of .51% in 1991 to a low of .09% in 1994. From 1990 through 1992, a period during which the national economy went through a recession, BancGroup's annual charge-off ratio averaged .49% with only a .04% variance between the high and low years. This consistently low and improving charge-off level has primarily been the result of the Company's localized lending strategies and early identification of potential problem loans. In addition, the current concentration of loans in residential real estate loans has had a favorable impact on net charge-offs. The schedule on the following page reflects greater than 100% coverage of nonperforming loans (nonaccrual and renegotiated) by the allowance for loan losses. Management has not targeted any specific coverage ratio in excess of 100%, and the coverage ratio may fluctuate significantly as larger loans are placed into or removed from nonperforming status. Management's focus has rather been on establishing reserves related to an earlier identification of potential problem loans. The increase in the coverage ratio from 246% at December 31, 1991 to 271% at December 31, 1995 reflects added reserves due to the growth in loans and the relatively consistent level of nonperforming loans (nonaccrual and renegotiated), coupled with management's decision to maintain and in fact increase reserves due to economic uncertainties. 30 17 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.
====================================================================================================== SUMMARY OF LOAN LOSS EXPERIENCE (In thousands) Years Ended December 31 - ------------------------------------------------------------------------------------------------------ 1995 1994 1993 1992 1991 ====================================================================================================== Allowance for possible loan losses-- January 1 $ 33,410 $ 28,633 $ 18,769 $ 16,154 $ 15,097 Charge-offs: Commercial, financial, and agricultural 2,211 1,836 2,877 3,149 2,670 Real estate--commercial 339 1,143 530 771 709 Real estate--construction 44 2 957 7 4 Real estate--residential 263 357 569 730 766 Installment and consumer 2,320 1,635 1,726 2,759 3,666 Other 163 168 7 83 74 - ------------------------------------------------------------------------------------------------------ Total charge-offs 5,340 5,141 6,666 7,499 7,889 - ------------------------------------------------------------------------------------------------------ Recoveries: Commercial, financial, and agricultural 698 1,646 629 504 595 Real estate--commercial* 26 202 44 49 3 Real estate--construction 11 12 25 - - Real estate--residential 159 77 102 171 157 Installment and consumer 1,294 1,430 1,502 1,396 1,488 Other 45 43 7 15 13 - ------------------------------------------------------------------------------------------------------ Total recoveries 2,233 3,410 2,309 2,135 2,256 - ------------------------------------------------------------------------------------------------------ Net charge-offs 3,107 1,731 4,357 5,364 5,633 Addition to allowance charged to operating expense 5,480 6,481 7,945 7,979 6,364 Allowance added from bank acquisitions 1,129 27 6,276 - 326 - ------------------------------------------------------------------------------------------------------ Allowance for possible loan losses-- December 31 $ 36,912 $ 33,410 $ 28,633 $ 18,769 $ 16,154 ====================================================================================================== Loans (net of unearned income) December 31 $2,875,581 $2,094,028 $1,771,989 $1,172,151 $1,093,728 Ratio of ending allowance to ending loans (net of unearned income) 1.28% 1.60% 1.62% 1.60% 1.48% Average loans (net of unearned income) $2,428,823 $1,906,385 $1,315,910 $1,136,124 $1,094,096 Ratio of net charge-offs to average loans (net of unearned income) 0.13% 0.09% 0.33% 0.47% 0.51% Allowance for loan losses as a percent of nonperforming loans (nonaccrual and renegotiated) 271% 314% 347% 246% 246% ======================================================================================================
31 18 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES - -------------------------------------------------------------------------------- NONPERFORMING ASSETS BancGroup classifies problem loans into four categories: nonaccrual, past due, renegotiated and other potential problems. When management determines a loan no longer meets the criteria for performing loans and collection of interest appears doubtful, the loan is placed on nonaccrual status. All loans that are 90 days past due are considered nonaccrual unless they are adequately collateralized, they are in the process of collection, and there is reasonable assurance of full collection of principal and interest. BancGroup's policy is also to charge off installment loans 120 days past due unless they are in the process of foreclosure and are adequately collateralized. Management closely monitors all loans which are contractually 90 days past due, renegotiated or nonaccrual. These loans are summarized as follows:
============================================================================================ NONPERFORMING ASSETS December 31 - -------------------------------------------------------------------------------------------- (IN THOUSANDS) 1995 1994 1993 1992 1991 - -------------------------------------------------------------------------------------------- Aggregate loans for which interest is not being accrued $12,600 $ 8,293 $ 8,139 $ 7,142 $ 5,957 Aggregate loans renegotiated to provide a reduction or deferral of interest or principal because of a deterioration in the financial condition of the borrower 1,035 2,360 117 476 620 - -------------------------------------------------------------------------------------------- Total nonperforming loans 13,635 10,653 8,256 7,618 6,577 Other real estate 8,619 8,118 15,021 8,066 5,042 Repossessions 162 81 88 103 150 - -------------------------------------------------------------------------------------------- Total nonperforming assets $22,416 $18,852 $23,365 $15,787 $11,769 - -------------------------------------------------------------------------------------------- Aggregate loans contractually past due 90 days for which interest is being accrued $ 1,029 $ 2,559 $ 2,218 $ 1,450 $ 1,597 Total nonperforming loans as a percent of net loans 0.47% 0.51% 0.47% 0.65% 0.60% Total nonperforming assets as a percent of net loans, other real estate and repossessions 0.78% 0.90% 1.31% 1.34% 1.07% Total nonaccrual, renegotiated and past due loans as a percent of total loans 0.51% 0.63% 0.59% 0.77% 0.75% Allowance for loan loss as a percent of nonperforming loans (nonaccrual and renegotiated) 271% 314% 347% 246% 246% - --------------------------------------------------------------------------------------------
Fluctuations from year to year in the balances of nonperforming assets are attributable to several factors including changing economic conditions in various markets, nonperforming assets obtained in various acquisitions and the disproportionate impact of larger (over $500,000) individual credits. On December 31, 1993 BancGroup completed the acquisition of First AmFed Corporation. With this acquisition the Company recorded $11.2 million in other real estate, $1.6 million in nonaccrual loans, and $.5 million in 90 day past due loans that were still accruing. The carrying value of these nonperforming assets was adjusted at the acquisition date to their current estimated fair values based on BancGroup's intention to dispose of them in the most expeditious and profitable manner. Excluding these nonperforming assets acquired with First AmFed, the Company's nonperforming asset ratio would have been .64% at December 31, 1993 compared to 1.31% noted above. During 1994 a substantial portion of these problem assets, particularly other real estate, was disposed of and the nonperforming asset ratio was reduced to .90%. In the fourth quarter of 1992, three large loans totaling $4.9 million were placed in nonperforming status, including one apartment loan ($1.3 million) which was classified as an "in substance foreclosure." The other two loans were to an industrial trailer manufacturer and a health care services provider located in different geographic areas of Alabama. All of these loans were either charged-off ($.5 million), paid off ($1.3 million) or paid current ($3.1 million) in 1993 and removed from nonperforming status. The majority of the balance of renegotiated loans at December 31, 1994 and 1995 represents a bankruptcy credit on which the rate was reduced to below current market rate. Nonaccrual loans at December 31, 1995 were $12.6 million compared to $8.3 million at December 31, 1994. This increase is primarily in commercial real estate 32 19 loans from prior years' acquisitions and the Georgia acquisition completed in 1995. Management, through its loan officers, internal loan review staff and external examinations by regulatory agencies, has identified approximately $111 million of potential problem loans not included above. The status of these loans is reviewed at least quarterly by loan officers and the centralized loan review function and annually by regulatory agencies. In connection with such reviews collateral values are updated where considered necessary. If collateral values are judged insufficient or other sources of repayment inadequate, the loans are reduced to estimated recoverable amounts through increases in reserves allocated to the loans or charge-offs. As of December 31, 1995 substantially all of these loans are current with their existing repayment terms. Management believes that classification of such loans as potential problem loans well in advance of their reaching a delinquent status allows the Company the greatest flexibility in correcting problems and providing adequate reserves without disruption of earnings trends. Given the reserves and the ability of the borrowers to comply with the existing repayment terms, management believes any exposure from these potential problem loans has been adequately addressed at the present time. The above nonperforming loans and potential problem loans represent all material credits for which management has serious doubts as to the ability of the borrowers to comply with the loan repayment terms. Management also expects that the resolution of these problem credits as well as other performing loans will not materially impact future operating results, liquidity or capital resources. Interest income earned on nonaccrual loans was $589,000, $414,000, $93,000, $316,000 and $232,000 in 1995, 1994, 1993, 1992 and 1991, respectively. Interest income foregone on such loans was approximately $830,000, $731,000, $526,000, $279,000 and $618,000 in 1995, 1994, 1993, 1992, and 1991 respectively. On January 1, 1996, BancGroup adopted SFAS No. 114, Accounting By Creditors for Impairment of a Loan, as amended by SFAS No. 118, Accounting by Creditors for Impairment of a Loan--Income Recognition Disclosure. As a result, the following loans were considered impaired as of December 31, 1995. See Note 1 to the consolidated financial statements for further discussion.
Carrying (In thousands) Balance Reserve Value --------------------------------------------------- Commercial, financial, and agricultural $ 2,319 $1,927 $ 392 Real Estate--Commercial 3,178 1,334 1,844 Real Estate--Construction 2,680 529 2,151 Real Estate--Residential 4,381 482 3,899 Installment and Consumer 782 232 550 Other 26 13 13 --------------------------------------------------- Total impaired loans $13,366 $4,517 $8,849 ===================================================
- ------------------------------------------------------------------------------- ALLOCATION OF ALLOWANCE FOR POSSIBLE LOAN LOSSES Allocations of the allowance for possible loan losses are made on an individual loan basis for all identified potential problem loans with a percentage allocation for the remaining portfolio. The allocations of the total allowance represent an approximation of the reserves for each category of loans based on management's evaluation of the respective historical charge-off experience and risk within each loan type.
================================================================================================== ALLOCATION OF THE ALLOWANCE FOR POSSIBLE LOAN LOSSES December 31 - -------------------------------------------------------------------------------------------------- (In thousands) 1995 1994 1993 1992 1991 - -------------------------------------------------------------------------------------------------- Balance at end of period applicable to: Commercial, financial, and agricultural $ 6,915 $ 6,010 $ 5,276 $ 4,280 $ 3,891 Real estate--commercial 12,306 12,168 11,112 6,030 5,025 Real estate--construction 5,593 3,156 1,407 1,741 963 Real estate--residential 7,057 8,560 7,159 3,906 3,524 Installment and consumer 2,853 2,227 2,549 2,175 2,174 Other 2,188 1,289 1,130 637 577 - -------------------------------------------------------------------------------------------------- Total $36,912 $33,410 $28,633 $18,769 $16,154 ==================================================================================================
SECURITIES BancGroup determines on a daily basis the funds available for short-term investment. Funds available for long-term investment are projected based upon anticipated loan and deposit growth, liquidity needs, pledging requirements and maturities of securities, as well as other factors. Based on these factors and management's interest rate and income tax forecast, an investment strategy is determined. Significant elements of this strategy as of December 31, 1995 include: - BancGroup's investment in U.S. Treasury securities and obligations of U.S. government agencies is substantially all pledged against public funds deposits. - Investment alternatives which maximize the highest after-tax net yield are considered. - Management has also attempted to increase the investment portfolio's overall yield by investing 33 20 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES ................................................................................ funds in excess of pledging requirements in high-grade corporate notes and mortgage-backed securities. - - BancGroup's investment in obligations of state and political subdivisions has been increased during 1994 and 1995 since the Company receives full benefit for tax-advantaged investments. The investment strategy also incorporates high-grade preferred stocks when the tax equivalent yield on these investments provides an attractive alternative. The yields on these preferred stocks are adjusted on a short-term basis and provide tax advantaged income without long-term interest rate risk. - - The maturities of investment alternatives are determined in consideration of the yield curve, liquidity needs and the Company's asset/liability gap position. Throughout 1992 and 1993, management invested in securities with maturities of 5 years or less with the majority in the 2-3 year range. As interest rates increased and the Company's asset/liability gap position allowed, maturities were increased during 1994 to the 5-7 year range and reduced to the 2-3 year range in 1995. - - The risk elements associated with the various types of securities are also considered in determining investment strategies. U.S. Treasury and U.S. government agency obligations are considered to contain virtually no default or prepayment risk. Mortgage-backed securities have varying degrees of risk of impairment of principal. Impairment risk is primarily associated with accelerated prepayments, particularly with respect to longer maturities purchased at a premium and interest-only strip securities. BancGroup's mortgage backed security portfolio as of December 31, 1995 or 1994 does not include any interest-only strips and the amount of unamortized premium on mortgage backed securities is approximately $123,000. The recoverability of BancGroup's investment in mortgage-backed securities is reviewed periodically, and where necessary, appropriate adjustments are made to income for impaired values. - - Obligations of state and political subdivisions, as well as other securities have varying degrees of credit risk associated with the individual borrowers. The credit ratings and the credit worthiness of these securities are reviewed periodically and appropriate reserves established when necessary Securities available for sale represent those securities that BancGroup intends to hold for an indefinite period of time or that may be sold in response to changes in interest rates, prepayment risk and other similar factors. These securities are recorded at market value with unrealized gains or losses, net of any tax effect, added or deducted from shareholders' equity. The balance in securities available for sale increased from $78 million at December 31, 1994 to $160 million at December 31, 1995 partially as a result of a reclassification from investment securities of $38 million in December 1995 as allowed by the Financial Accounting Standards Board to realign the portfolios without risk of penalties and $26 million from acquisitions. The Company took this opportunity to reclassify certain structured notes, corporate and municipal bonds to allow for possible disposition and certain treasury notes for liquidity purposes.
SECURITIES BY CATEGORY =================================================================== Carrying Value at December 31 - ------------------------------------------------------------------- (In thousands) 1995 1994 1993 - ------------------------------------------------------------------- Investment securities: U.S. Treasury securities and obligations of U.S. government agencies $212,513 $270,993 $224,961 Obligations of state and political subdivisions 46,613 40,312 35,173 Other 10,367 15,294 31,304 - ------------------------------------------------------------------- Total $269,493 $326,599 $291,438 - ------------------------------------------------------------------- Securities available for sale: U.S. Treasury securities and obligations of U.S. government agencies $129,357 $ 65,500 $103,716 Obligations of state and political subdivisions 570 5 5 Other 29,936 12,760 4,395 - ------------------------------------------------------------------- Total $159,863 $ 78,265 $108,116 - -------------------------------------------------------------------
At December 31, 1995, there was no single issuer with the exception of U.S. government and U.S. government agencies, where the aggregate book value of these securities exceeded ten percent of shareholders' equity or $25.3 million. 34 21
MATURITY DISTRIBUTION OF SECURITIES Within 1 Year 1-5 Years 5-10 Years Over 10 Years ----------------- --------------- --------------- ---------------- Average Average Average Average (In thousands) Amount Rate Amount Rate Amount Rate Amount Rate - ----------------------------------------------------------------------------------------------------------------- Investment securities: U.S. Treasury securities and obligations of U.S. government agencies $ 42,263 5.50% $119,419 6.42% - - $ 518 6.99% Mortgage-backed securities 217 8.05 21,610 6.40 $13,463 7.54% 15,023 8.09 Obligations of state and political subdivisions (1) 6,395 7.15 23,563 7.20 14,182 8.07 2,473 9.43 Other (2) 5 5.50 - - 362 8.24 - - -------- -------- ------- ------- Total $ 48,880 5.73% $164,592 6.53% $28,007 7.82% $18,014 8.24% - ----------------------------------------------------------------------------------------------------------------- Securities available for sale (3): U.S. Treasury securities and obligations of U.S. government agencies $ 70,229 5.64% Mortgage-backed securities 59,128 6.86 Obligations of state and political subdivisions (1) 570 5.34 Other 6,053 7.60 -------- Total $135,980 6.27% ======================================================
(1) The weighted average yields are calculated on the basis of the cost and effective yield weighted for the scheduled maturity of each security. The weighted average yields on tax exempt obligations have been computed on a fully taxable equivalent basis using a tax rate of 35%. The taxable equivalent adjustment represents the annual amounts of income from tax exempt obligations multiplied by 145%. (2) This category excludes all corporate common and preferred stocks since these instruments have no maturity date. (3) Securities available for sale are shown as maturing within one year although BancGroup intends to hold these securities for an indefinite period of time. (See Contractual Maturities in Note 3 to the consolidated financial statements.) - -------------------------------------------------------------------------------- DEPOSITS BancGroup's deposit structure consists of the following:
December 31 % Of Total - --------------------------------------------------------------------------------------------------- (In thousands) 1995 1994 1995 1994 =================================================================================================== Noninterest-bearing demand deposits $ 462,735 $ 362,557 16.6% 16.7 Interest-bearing demand deposits 447,145 462,055 16.1 21.3 Savings deposits 277,177 266,536 9.9 12.3 Certificates of deposits less than $100,000 1,094,863 687,007 39.3 31.6 Certificates of deposits more than $100,000 274,207 189,058 9.8 8.7 IRA's 183,136 154,346 6.6 7.1 Open time deposits 46,695 49,905 1.7 2.3 - --------------------------------------------------------------------------------------------------- Total deposits $2,785,958 $2,171,464 100.0% 100.0% ===================================================================================================
The growth in deposits and the mix of deposits has been most significantly impacted in 1994 and 1995 by acquisitions. BancGroup acquired several thrift institutions from 1993 to 1995. As such, the level of noninterest-bearing demand deposits was less than 3% of the total deposits acquired with the major portion of acquired deposits in certificates of deposits. Noninterest-bearing demand deposits have increased $100 million (28%) from December 31, 1994 to December 31, 1995. The increase in average noninterest demand deposits has been approximately 37.4%. Included in this 37.4% increase is approximately 25% related to an increase in custodial deposits of Colonial Mortgage Company with the remaining approximately 12% primarily related to internal growth throughout the Company's branch system. As noted above, the acquired thrifts did not add any significant amounts of noninterest-bearing demand accounts. However, the presence of such branches and customer relationships has attracted demand deposit accounts after the mergers. The Company also acquired two commercial banks in 1995 with approximately $12 million in non-interest bearing deposits at acquisition. The majority of the noninterest-bearing demand deposit growth is attributable to the Company's focus on developing customer relationships and sales efforts. BancGroup has attempted through its acquisition and branch expansion programs to increase its market presence in the State of Alabama and expand into other growth markets in the Southeast, the first of which was Atlanta in 1995. The principal goal is to provide the Company's retail customer base with convenient access 35 22 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES - ------------------------------------------------------------------------------- to branch locations while enhancing the Company's potential for future increases in profitability. During 1995 BancGroup established retail banking, training and policies and procedures departments as well as continuing its branch automation project to reinforce the Company's goal of providing the customer with the best possible service. In connection with this goal, several other initiatives have been undertaken, including an electronic banking division which includes home banking, business banking, automatic teller, credit card and check card services. The Company has increased its automatic teller machine services by expanding into 67 WalMart locations throughout Alabama. Full service banking will be offered in nine WalMart locations in 1996 with eight located in Alabama and one in Tennessee. The Company is continuing its sales of investment products, such as mutual funds and annuities to customers seeking alternatives to deposit products. The overall goal of these steps has been to efficiently provide customers with the financial products they need and desire. In 1995 the Company initiated a brokered Certificate of Deposit (CD) program to offer CD's in increments of $1,000 to $99,000 to out of market customers at competitive rates and maturities. At December 31, 1995, $75 million of CD's were outstanding under this program. - -------------------------------------------------------------------------------- SHORT-TERM BORROWINGS Short-term borrowings were comprised of the following at December 31, 1995, 1994 and 1993:
(In thousands) 1995 1994 1993 - ----------------------------------------------------- Federal funds purchased and securities sold under repurchase agreements $131,115 $133,419 $104,818 Federal Home Loan Bank borrowings 465,000 210,000 190,150 Other short-term borrowings 1,141 1,131 1,000 - ----------------------------------------------------- Total $597,256 $344,550 $295,968 - -----------------------------------------------------
BancGroup has available Federal Funds lines from upstream banks including the Federal Home Loan Bank (FHLB) totaling $558 million at December 31, 1995. In addition, correspondent banks and customers with repurchase agreements have provided a consistent base of short-term funds. BancGroup became a member of the FHLB in late 1992. As a member of the FHLB, BancGroup can borrow up to $850 million from the FHLB on either a short or long-term basis excluding funds available through the federal funds line. Short-term borrowings, including FHLB borrowings, have been used to fund short-term assets, primarily mortgage loans held for sale, and loans. During 1994 the volume of mortgage loans held for sale decreased significantly as long-term interest rates increased. FHLB borrowings have been used during 1994 and 1995 to fund loan growth. As discussed more fully in the "Liquidity and Interest Sensitivity" section of this report, the line of credit with the FHLB is considered a primary source of funding for the Company's asset growth. - -------------------------------------------------------------------------------- LIQUIDITY AND INTEREST SENSITIVITY BancGroup has addressed its liquidity and interest rate sensitivity through its policies and structure for asset/liability management. It has created the Asset/Liability Management Committee ("ALMCO"), the objective of which is to optimize the net interest margin while assuming reasonable business risks. ALMCO annually establishes operating constraints for critical elements of BancGroup's business, such as liquidity and rate sensitivity. ALMCO constantly monitors performance and takes action in order to meet its objectives. Of primary concern to ALMCO is maintaining adequate liquidity. Liquidity is the ability of an organization to meet its financial commitments and obligations on a timely basis. These commitments and obligations include credit needs of customers, withdrawals by depositors, repayment of debt when due and payment of operating expenses and dividends. The Consolidated Statement of Cash Flows identifies the three major sources and uses of cash (liquidity) as operating, investing and financing activities. Operating activities reflect cash generated from operations. Management views cash flow from operations as a major source of liquidity. Investing activities represent a primary usage of cash with the major net increase being attributed to loan growth. When investment securities mature they are generally reinvested in new investment securities or assets held for sale. Financing activities generally provide funding for the growth in loans and investment securities with increased deposits. Short-term borrowings are used to provide funding for temporary gaps in the funding of long-term assets and deposits, as well as to provide funding for mortgage loans held for sale and loan growth. BancGroup has the ability to tap other markets for certificates of deposits and to utilize established lines for Federal funds purchased and FHLB advances. BancGroup maintains and builds diversified funding sources in order to provide 36 23 flexibility in meeting its requirements. From 1992 through 1995 the significant changes in the Company's cash flows have centered around loan growth and fluctuations in mortgage loans held for sale. Loan growth of $541 million in 1995 and $323 million in 1994 has been one of the principal uses of cash in both years. The decrease in mortgage loans held for sale, was a principal source of cash in 1994 decreasing $301 million. In 1995 these loans increased, using $50 million in funds. As noted in previous sections, short-term borrowings increased $252 million in 1995 and were used to fund loan growth. Management has chosen to fund short-term fluctuations in the volume of mortgage loans held for sale with short-term borrowings as opposed to increasing rate sensitive deposits. Deposit growth of $367 million with $75 million from the previously discussed brokered CD program provided an additional source of funding for internal loan growth. As noted previously, the composition of the Company's loan portfolio has changed over the past three years. BancGroup at December 31, 1995 had $1.4 billion of residential real estate loans. These loans provide collateral for the current $850 million credit line at the FHLB. The FHLB unused credit capacity, $385 million at December 31, 1995, provides the Company significant flexibility in asset/liability management, liquidity and deposit pricing. In August, 1993 the Company retired $15 million of its 1986 subordinated debentures which had a maturity date of 2011. The retirement of this debt was funded with a $15 million term note which requires an annual principal amortization of $1 million. The term note was reduced to a balance of $11,250,000 at December 31, 1995. In August 1995 BancGroup entered into a two year revolving line of credit for $15 million. This line of credit provides an additional source of funding for acquisition related activities. Management believes its liquidity sources and funding strategies are adequate given the nature of its asset base and current loan demand. The primary uses of funds as reflected in BancGroup's Parent Only Statement of Cash Flows were $2.7 million for the payment of interest on debt, $1.0 million for principal payment on term notes (See Note 9 to the Consolidated Financial Statements) and $10.5 million for the payment of dividends. The Parent Company's primary source of funds was $13.4 million in dividends received from its Alabama subsidiary bank and $6.2 million in proceeds from the line of credit discussed previously. Dividends payable by national and state banks in any year, without prior approval of the appropriate regulatory authorities, are limited to the bank's net profits (as defined) for that year combined with its retained net profits for the preceding two years. Under these limitations, approximately $54 million of retained earnings plus certain 1996 earnings would be available for distribution to BancGroup as dividends in 1996 without prior approval from the respective regulatory authorities. BancGroup anticipates that the cash flow needs of the parent company are well below the regulatory dividend restrictions of its subsidiary bank. At December 31, 1995, BancGroup's liquidity position was adequate with loan maturities of $735 million, or 26% of the total loan portfolio, due within one year. Investment securities totaling $185 million or 43% of the total portfolio also had maturities within one year or have been classified as available for sale. As of December 31, 1995 there were, however, no current plans to dispose of any significant portion of these securities. In addition BancGroup has $385 million in additional borrowing capacity at the FHLB. BancGroup's asset/liability management policy has also established targets for interest rate sensitivity. Changes in interest rates will necessarily lead to changes in the net interest margin. It is ALMCO's goal to minimize volatility in the net interest margin by taking an active role in managing the level, mix and maturities of assets and liabilities and by analyzing and taking action to manage mismatch and basis risk. The interest sensitivity schedule on page 38 reflects an 8.0% negative gap at 12 months. Based on this schedule, management believes that neither an increase or decrease in interest rates would result in a material swing in net income. Management has managed the asset/liability position of the bank through traditional sources. The Company does however, use off balance sheet instruments for hedging purposes to limit its risk associated with the sale of mortgage loans by providing sales commitments on all loans funded. The following table summarizes BancGroup's interest rate sensitivity as of December 31, 1995. 37 24 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES - ------------------------------------------------------------------------------
At December 31, 1995 ---------------------------------------------------------------------- Interest Sensitive Within ---------------------------------------------------------------------- Total 0-90 91-180 181-365 Over (In thousands) Balance Days Days Days 1 Year ======================================================================================================================== Rate Sensitive Assets: Federal funds sold and resale agreements $ 5,384 $ 5,384 $ - $ - $ - Investment securities 269,493 58,413 11,479 38,583 161,018 Securities available for sale 159,863 17,300 10,792 2,221 129,550 Mortgage loans held for sale 110,486 110,486 - - - - ------------------------------------------------------------------------------------------------------------------------ Loans, net of unearned income 2,875,581 1,039,661 197,083 358,796 1,280,041 Allowance for possible loan losses (36,912) (13,346) (2,530) (4,605) (16,431) - ------------------------------------------------------------------------------------------------------------------------ Net loans 2,838,669 1,026,315 194,553 354,191 1,263,610 Nonearning assets 357,322 - - - 357,322 - ------------------------------------------------------------------------------------------------------------------------ Total assets $ 3,741,217 $ 1,217,898 $ 216,824 $ 394,995 $ 1,911,500 - ------------------------------------------------------------------------------------------------------------------------ Rate Sensitive Liabilities: Interest-bearing demand deposits $ 447,145 $ 281,032 $ - $ - $ 166,113 Savings deposits 277,177 150,485 - - 126,692 Certificates of deposits less than $100,000 1,094,863 231,601 199,621 318,543 345,098 Certificates of deposits more than $100,000 274,207 71,756 56,735 56,390 89,326 IRA's 183,136 48,440 20,636 26,924 87,136 Open time deposits 46,695 45,439 48 302 906 Short-term borrowings 597,256 597,256 - - - Long-term debt 46,159 25,080 87 174 20,818 Noncosting liabilities & equity 774,579 - - - 774,579 - ------------------------------------------------------------------------------------------------------------------------ Total Liabilities & Equity $ 3,741,217 $ 1,451,089 $ 277,127 $ 402,333 $ 1,610,668 - ------------------------------------------------------------------------------------------------------------------------ Gap $ - ($ 233,191) ($ 60,303) ($ 7,338) $ 300,832 - ------------------------------------------------------------------------------------------------------------------------ Cumulative Gap $ - ($ 233,191) ($ 293,494) ($ 300,832) - ========================================================================================================================
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. Furthermore, the balances reflect contractual repricing of the deposits and management's position on repricing certain deposits where management discretion is permitted. Certain demand deposit accounts and regular savings accounts have been classified as repricing beyond one year. While these accounts are subject to immediate withdrawal, experience has shown them to be relatively rate insensitive. If these accounts were included in the 0-90 day category, the gap in that time frame would be a negative $526 million with a corresponding cumulative gap at one year of negative $594 million. - -------------------------------------------------------------------------------- CAPITAL ADEQUACY AND RESOURCES Management is committed to maintaining capital at a level sufficient to protect shareholders and depositors, provide for reasonable growth and fully comply with all regulatory requirements. Management's strategy to achieve these goals is to retain sufficient earnings while providing a reasonable return to shareholders in the form of dividends and return on equity. BancGroup's dividend pay-out ratio in 1995 was 27%. This level is below the Company's target range of 30-45%. Dividend rates are determined by the Board of Directors in consideration of several factors including: current and projected capital ratios, liquidity and income levels and other bank dividend yields and payment ratios. The amount of a cash dividend, if any, rests with the discretion of the Board of Directors of BancGroup as well as upon applicable statutory constraints such as the Delaware law requirement that dividends may be paid only out of capital surplus or out of net profits for the fiscal year in which the dividend is declared or the preceding fiscal year. BancGroup also has access to equity capital markets through both public and private issuances. Management considers these sources and related return in addition to internally generated capital in evaluating future expansion or acquisition opportunities. The Federal Reserve Board has issued guidelines identifying minimum Tier I leverage ratios relative to total assets and minimum capital ratios relative to risk-adjusted assets. The minimum leverage ratio is 3% but is increased from 100 to 200 basis points based on a review of individual banks by the Federal Reserve. The minimum risk adjusted capital ratios established by the 38 25 Federal Reserve are 4% for Tier I and 8% for total capital. BancGroup's actual capital ratios and the components of capital and risk adjusted asset information as of December 31, 1995 are stated below: Capital (thousands): Tier I Capital: Shareholders' equity (excluding unrealized gain on securities available for sale) less intangibles $ 226,050 Tier II Capital: Allowable loan loss reserve 32,298 Subordinated debt 17,121 ---------- Total Capital $ 275,469 Risk Adjusted Assets (thousands) $2,579,230 Total Assets (thousands) $3,741,217
1995 1994 1993 - -------------------------------------------------- Tier I leverage ratio 6.19% 6.34% 5.59% Risk Adjusted Capital Ratios: Tier I Capital Ratio 8.76% 9.03% 8.44% Total Capital Ratio 10.68% 11.17% 10.64%
BancGroup has increased capital gradually through normal earnings retention as well as through stock registrations to capitalize acquisitions. In December 1995, BancGroup notified the holders of its 1985 Convertible Subordinated Debentures of redemption of all debentures outstanding at January 31, 1996. In 1996 substantially all of the debentures were converted resulting in the issuance of 403,299 shares of Common Stock and payment in cash for the remaining balance. (See Note 9 to the consolidated financial statements.) REGULATORY RESTRICTIONS As noted previously on page 37, dividends payable by national and state banks in any year, without prior approval of the appropriate regulatory authorities, are limited. The subsidiary banks are also required by law to maintain noninterest-bearing deposits with the Federal Reserve Bank to meet regulatory reserve requirements. At December 31, 1995, these deposits totaled $47.4 million. FINANCIAL ACCOUNTING STANDARDS BOARD RELEASES In 1995 the Financial Accounting Standards Board issued Statement of Accounting Standards (SFAS) No. 121 Accounting for the Impairment of Long-lived Assets to be Disposed Of and SFAS No. 123 Accounting for Stock--Based Compensation. Both standards require adoption for years beginning after December 15, 1995. Management believes that the adoption of these statements will not have a material impact on BancGroup's financial position or results of operation. In May 1995, effective January 1,1995, BancGroup adopted SFAS No. 122 Accounting for Mortgage Servicing Rights, an amendment to SFAS No. 65. (See Note 1 to the consolidated financial statements.) 39 26 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES - -------------------------------------------------------------------------------- REPORT OF INDEPENDENT ACCOUNTANTS TO THE BOARD OF DIRECTORS AND SHAREHOLDERS THE COLONIAL BANCGROUP, INC. We have audited the accompanying consolidated statement of condition of The Colonial BancGroup, Inc. and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of The Colonial BancGroup, Inc. and subsidiaries as of December 31, 1995 and 1994, the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. As discussed in Notes 1 and 18 to the consolidated financial statements, the Company changed its method of accounting for mortgage servicing rights in 1995, for investments in 1994 and for income taxes in 1993. COOPERS & LYBRAND L.L.P. Montgomery, Alabama February 23, 1996 40 27 - ------------------------------------------------------------------------------- CONSOLIDATED STATEMENT OF CONDITION December 31, 1995 and 1994 (In thousands)
ASSETS 1995 1994 - ----------------------------------------------------------------------------------------------------- Cash and due from banks $ 126,777 $ 129,720 Interest-bearing deposits in banks 5,384 1,777 Federal funds sold - 500 Securities available for sale (Note 3) 159,863 78,265 Investment securities (market value: 1995, $272,800; 1994, $316,822; (Note 3) 269,493 326,599 Mortgage loans held for sale 110,486 60,536 Loans, net of unearned income (Note 4) 2,875,581 2,094,028 Less: Allowance for possible loan losses (Note 5) (36,912) (33,410) - ----------------------------------------------------------------------------------------------------- Loans, net 2,838,669 2,060,618 Premises and equipment, net 55,161 45,874 Excess of cost over tangible and identified intangible assets acquired, net 26,262 16,239 Mortgage servicing rights 80,053 54,796 Other real estate owned 8,781 8,199 Accrued interest and other assets 60,288 55,220 - ----------------------------------------------------------------------------------------------------- Total $3,741,217 $2,838,343 ===================================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Noninterest-bearing demand $ 462,735 $ 362,557 Interest-bearing demand 447,145 462,055 Savings 277,177 266,536 Time 1,598,901 1,080,316 - ----------------------------------------------------------------------------------------------------- Total deposits 2,785,958 2,171,464 FHLB short-term borrowings (Note 8) 465,000 210,000 Other short-term borrowings (Note 8) 132,256 134,550 Subordinated debt (Note 9) 17,121 17,459 Other long-term debt (Note 9) 29,038 69,042 Other liabilities 58,696 44,277 - ----------------------------------------------------------------------------------------------------- Total liabilities 3,488,069 2,646,792 - ----------------------------------------------------------------------------------------------------- Commitments and contingencies (Notes 6, 15) Shareholders' equity (Notes 3, 10): Preference Stock, $2.50 par value; 1,000,000 shares authorized, none issued Common Stock, $2.50 par value; 44,000,000 shares authorized, outstanding: 13,084,721 shares issued and outstanding in 1995. 32,712 Class A Common Stock, $2.50 par value; 40,000,000 shares authorized, outstanding: 11,280,031 shares in 1994.(*) 28,200 Class B Common Stock, $2.50 par value; 4,000,000 shares authorized, outstanding 635,088 shares in 1994.(*) 1,588 Additional paid in capital 137,107 109,658 Retained earnings 83,315 55,042 Unearned compensation (822) - Unrealized gain (loss) on securities available for sale, net of taxes 836 (2,937) - ----------------------------------------------------------------------------------------------------- Total shareholders' equity 253,148 191,551 - ----------------------------------------------------------------------------------------------------- Total $3,741,217 $2,838,343 =====================================================================================================
- --------------- (*) On February 21, 1995 the Class A and Class B Common Stock were reclassified into one class. (See Note 10.) See notes to consolidated financial statements. 41 28 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENT OF INCOME For the years ended December 31, 1995, 1994 and 1993 (In thousands, except per share amounts)
1995 1994 1993 - -------------------------------------------------------------------------------------------------------- INTEREST INCOME: Interest and fees on loans $224,784 $164,649 $124,384 Interest and dividends on securities: Taxable 21,062 18,287 13,882 Nontaxable 2,318 2,047 1,727 Dividends 2,093 1,768 1,228 Interest on federal funds sold and securities purchased under resale agreements 354 186 247 Other interest 289 293 104 - -------------------------------------------------------------------------------------------------------- Total interest income 250,900 187,230 141,572 - -------------------------------------------------------------------------------------------------------- INTEREST EXPENSE: Interest on deposits 99,490 68,663 50,455 Interest on short-tern borrowings 29,231 10,425 6,268 Interest on long-term debt 3,737 3,461 2,794 - -------------------------------------------------------------------------------------------------------- Total interest expense 132,458 82,549 59,517 - -------------------------------------------------------------------------------------------------------- NET INTEREST INCOME BEFORE PROVISION FOR POSSIBLE LOAN LOSSES 118,442 104,681 82,055 Provision for possible loan losses (Notes 1, 5) 5,480 6,481 7,945 - -------------------------------------------------------------------------------------------------------- NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE LOAN LOSSES 112,962 98,200 74,110 - -------------------------------------------------------------------------------------------------------- NONINTEREST INCOME: Mortgage servicing fees 23,429 22,216 21,079 Service charges on deposit accounts 14,203 12,384 11,104 Securities gains, net (Note 3) 5 84 49 Other charges, fees and commissions 3,545 3,134 2,245 Other income 8,993 6,425 5,956 - -------------------------------------------------------------------------------------------------------- Total noninterest income 50,175 44,243 40,433 - -------------------------------------------------------------------------------------------------------- NONINTEREST EXPENSE: Salaries and employee benefits 39,786 43,355 38,453 Occupancy expense of bank premises, net 9,004 8,610 7,302 Furniture and equipment expenses 8,504 7,468 6,452 Amortization of mortgage servicing rights 9,095 6,078 4,840 Amortization of intangible assets 1,325 1,196 818 Other expense (Note 17) 35,516 34,084 28,655 - -------------------------------------------------------------------------------------------------------- Total noninterest expense 103,230 100,791 86,520 - -------------------------------------------------------------------------------------------------------- INCOME BEFORE INCOME TAXES, EXTRAORDINARY ITEMS AND THE CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING FOR INCOME TAXES 59,907 41,652 28,023 Applicable income taxes (Note 18) 21,113 14,342 8,886 - -------------------------------------------------------------------------------------------------------- INCOME BEFORE EXTRAORDINARY ITEMS AND THE CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING FOR INCOME TAXES 38,794 27,310 19,137 Extraordinary items, net of income taxes (Note 9) - - (463) Cumulative effect of a change in accounting for income taxes (Notes 1, 18) - - 3,219 - -------------------------------------------------------------------------------------------------------- NET INCOME $ 38,794 $ 27,310 $ 21,893 ======================================================================================================== EARNINGS PER SHARE: Primary: Income before extraordinary items and the cumulative effect of a change in accounting for income taxes $ 3.12 $ 2.28 $ 2.01 Extraordinary item, net of income taxes - - (0.05) Cumulative effect of a change in accounting for income taxes - - 0.34 Net Income $ 3.12 $ 2.28 $ 2.30 Fully-diluted: Income before extraordinary items and the cumulative effect of a change in accounting for income taxes $ 3.02 $ 2.23 $ 1.96 Extraordinary item, net of income taxes - - (0.04) Cumulative effect of a change in accounting for income taxes - - 0.29 Net income $ 3.02 $ 2.23 $ 2.21 AVERAGE NUMBER OF SHARES OUTSTANDING: Primary 12,418 11,996 9,530 Fully-diluted 13,181 12,763 10,623 ========================================================================================================
See notes to consolidated financial statements. 42 29 - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY For the years ended December 31, 1995, 1994 and 1993 (Dollars in thousands)
Class A Class B Common Stock Common Stock Common Stock Shares Amount Shares Amount Shares Amount - -------------------------------------------------------------------------------------------------------------------- Balance, January 1, 1993 8,275,336 $ 20,688 637,528 $ 1,594 Shares issued under: Directors Stock Plan 13,116 33 Stock Option Plans 21,350 53 Dividend Reinvestment 13,950 35 Issuance of shares for acquisitions 2,839,002 7,098 66 Net income Cash dividends: (Class A, $0.71 per share; Class B, $0.31 per share) Conversion of 7 1/2% convertible subordinated debentures 107 Conversion of Class B Common Stock to Class A Common Stock 699 2 (699) (2) - -------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1993 11,163,560 27,909 636,895 1,592 - -------------------------------------------------------------------------------------------------------------------- Shares issued under: Directors Stock Plan 14,267 36 Stock Option Plans 67,078 168 Dividend Reinvestment 23,013 57 Stock Bonus & Retention Plan 650 2 Employee Stock Purchase Plan 2,186 5 Issuance of shares for previous year acquisitions 7,470 19 Net income Cash dividends: (Class A, $0.80 per share; Class B, $0.40 per share) Conversion of Class B Common Stock to Class A Common Stock 1,807 4 (1,807) (4) Unrealized loss on securities available for sale, net of taxes - -------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1994 11,280,031 28,200 635,088 1,588 - -------------------------------------------------------------------------------------------------------------------- Shares issued under: Directors Stock Plan 858 2 16,166 $ 39 Stock Option Plan 6,591 17 32,928 82 Dividend Reinvestment 26,758 66 Stock Bonus & Retention Plan 25,000 63 Employee Stock Purchase Plan 268 1 3,767 10 Conversion of Class A Common Stock and Class B Common Stock to Common Stock (11,287,748) (28,220) (635,088) (1,588) 11,922,836 29,808 Issuance of shares for acquisitions 1,044,997 2,612 Net Income Cash Dividends (Class A, $0.225; Class B, $0.125; Common, $0.675 per share) Conversion of 7 1/2% convertible subordinated debentures 11,709 31 Conversion of 12 3/4% convertible subordinated debentures 560 1 Change in Unrealized loss on securities available for sale, net of taxes - -------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1995 0 $ 0 0 $ 0 13,084,721 $32,712 ====================================================================================================================
Unrealized Gain (Loss) on Additional Securities Total Paid in Retained Unearned Available Shareholders' Capital Earnings Compensation For Sale Equity - -------------------------------------------------------------------------------------------------------------- Balance, January 1, 1993 $ 60,006 $ 18,118 - $100,406 Shares issued under: Directors Stock Plan 164 197 Stock Option Plans 102 155 Dividend Reinvestment 259 294 Issuance of shares for acquisitions 47,566 54,664 Net income 21,893 21,893 Cash dividends: (Class A, $0.71 per share; Class B, $0.31 per share) (4,847) (4,847) Conversion of 7 1/2% convertible subordinated debentures 2 2 Conversion of Class B Common Stock to Class A Common Stock - - ------------------------------------------------------------------------------------------------------------- Balance, December 31, 1993 108,099 35,164 _ 172,764 - ------------------------------------------------------------------------------------------------------------- Shares issued under: Directors Stock Plan 248 284 Stock Option Plans 738 906 Dividend Reinvestment 432 489 Stock Bonus & Retention Plan 10 12 Employee Stock Purchase Plan 43 48 Issuance of shares for previous year acquisitions 88 107 Net income 27,310 27,310 Cash dividends: (Class A, $0.80 per share; Class B, $0.40 per share) (7,432) (7,432) Conversion of Class B Common Stock to Class A Common Stock _ Unrealized loss on securities available for sale, net of taxes $(2,937) (2,937) - ------------------------------------------------------------------------------------------------------------- Balance, December 31, 1994 109,658 55,042 (2,937) 191,551 - ------------------------------------------------------------------------------------------------------------- Shares issued under: Directors Stock Plan 285 326 Stock Option Plan 279 378 Dividend Reinvestment 516 582 Stock Bonus & Retention Plan 759 $(822) Employee Stock Purchase Plan 99 110 Conversion of Class A Common Stock and Class B Common Stock to Common Stock Issuance of shares for acquisitions 25,204 27,816 Net Income 38,794 38,794 Cash Dividends (Class A, $0.225; Class B, $0.125; Common, $0.675 per share) (10,521) (10,521) Conversion of 7 1/2% convertible subordinated debentures 298 329 Conversion of 12 3/4% convertible subordinated debentures 9 10 Change in Unrealized loss on securities available for sale, net of taxes 3,773 3,773 - ------------------------------------------------------------------------------------------------------------- Balance, December 31, 1995 $137,107 $ 83,315 ($822) $ 836 $253,148 =============================================================================================================
See notes to consolidated financial statements. 43 30 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENT OF CASH FLOWS For the years ended December 31, 1995, 1994 and 1993 (In thousands)
1995 1994 1993 - ------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net income $ 38,794 $ 27,310 $ 21,893 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation, amortization and accretion 10,106 8,431 7,243 Amortization of mortgage servicing rights 9,095 6,078 4,840 Amortization of excess servicing fees 1,166 1,721 3,773 Provision for possible loan losses 5,480 6,481 7,945 Deferred income taxes (1,201) (1,794) (6,238) Gain on sale of securities, net (5) (84) (49) Additions to mortgage servicing rights (32,139) (34,624) (19,377) Net (increase) decrease in mortgage loans held for sale (49,950) 300,960 (217,281) Increase in interest receivable (8,222) (3,161) (896) (Increase) decrease in prepaids and other receivables 1,411 532 (4,429) (Decrease) increase in accrued expenses and accounts payable (9,078) (36,986) 22,830 Increase (decrease) in accrued income taxes 2,709 (2,372) (1,317) Increase (decrease) in interest payable 9,747 2,110 (1,383) Other, net (1,808) (2,396) 4,174 - ------------------------------------------------------------------------------------------------------------- Total adjustments (62,689) 244,896 (200,165) - ------------------------------------------------------------------------------------------------------------- Net cash (used in) provided by operating activities (23,895) 272,206 (178,272) - ------------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Proceeds from maturities of securities available for sale 15,983 30,870 11,947 Proceeds from sales of securities available for sale 13,585 16,156 -- Purchase of securities available for sale (42,072) (49) (10,166) Proceeds from maturities of investment securities 80,989 70,767 202,455 Proceeds from sales of investment securities -- -- 1,751 Purchases of investment securities (51,134) (123,167) (218,121) Net (increase) decrease in short-term investment securities -- (6,000) 39,000 Net increase in loans (541,534) (322,849) (140,198) Cash received in bank acquisitions, net (Note 2) 23,201 -- 71,384 Cash received in the purchase of assets and assumption of liabilities (Note 2) -- 15,275 4,491 Capital expenditures (9,001) (6,966) (7,119) Proceeds from sale of other real estate owned 4,849 6,413 4,990 Other, net 2,787 (28) 1,049 - ------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (502,347) (319,578) (38,537) - ------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Net increase (decrease) in demand, savings and time deposits 366,646 (35,245) 75,098 Net increase in federal funds purchased and repurchase agreements and other short-term borrowings 212,696 48,452 195,511 Retirement of subordinated debt -- -- (15,338) Proceeds from issuance of long-term debt 12,092 25,336 27,498 Repayment of long-term debt (55,510) (13,443) (8,012) Proceeds from issuance of common stock 1,003 1,202 428 Dividends paid (10,522) (7,432) (4,847) - ------------------------------------------------------------------------------------------------------------- Net cash provided by financing activities 526,405 18,870 270,338 - ------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents 163 (28,502) 53,529 Cash and cash equivalents at beginning of year 131,997 160,499 106,970 - ------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of year (Note 1) $ 132,160 $ 131,997 $ 160,499 ============================================================================================================= Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 122,711 $ 80,961 61,535 Income taxes 18,199 20,583 12,791 Non-cash transactions: Transfer of loans to other real estate $ 4,216 $ 2,255 $ 1,813 Origination of loans for the sale of other real estate 456 1,309 537 Transfer of investment securities to securities available for sale 37,959 22,188 20,738 Assets acquired in business combinations 330,626 596 703,885 Liabilities assumed in business combinations 302,810 15,871 649,221
See notes to consolidated financial statements. 44 31 - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 1995, 1994 and 1993 1. SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES The Colonial BancGroup, Inc. ("BancGroup") and its subsidiaries operate predominantly in the domestic commercial and mortgage banking industry. The accounting and reporting policies of BancGroup and its subsidiaries conform to generally accepted accounting principles and to general practice within the banking industry. The following summarizes the most significant of these policies. BASIS OF PRESENTATION-- The Consolidated Financial Statements of BancGroup for 1994 and 1993 have previously been restated to give retroactive effect to the February 17, 1995 acquisition of Colonial Mortgage Company, which is accounted for in a manner similar to a pooling of interests. (See Note 2) PRINCIPLES OF CONSOLIDATION--The Consolidated Financial Statements and Notes to Consolidated Financial Statements include the accounts of BancGroup and its subsidiaries, all of which are wholly owned. All significant intercompany balances and transactions have been eliminated. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS--The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS--The Company considers cash and highly liquid investments with maturities of three months or less when purchased as cash and cash equivalents. Cash and cash equivalents consist primarily of cash and due from banks, interest-bearing deposits in banks and Federal funds sold. INVESTMENT SECURITIES AND SECURITIES AVAILABLE FOR SALE--Effective January 1, 1994, BancGroup adopted Statement of Financial Accounting Standards (SFAS) No. 115 "Accounting for Certain Investments in Debt and Equity Securities." Under this statement, securities are classified as either held-to-maturity, available-for-sale or trading. Held-to-maturity or investment securities are securities for which management has the ability and intent to hold on a long-term basis or until maturity. These securities are carried at amortized cost, adjusted for amortization of premiums, and accretion of discount to the earlier of the maturity or call date. Securities available-for-sale represent those securities intended to be held for an indefinite period of time, including securities that management intends to use as part of its asset/liability strategy, or that may be sold in response to changes in interest rates, changes in prepayment risk, the need to increase regulatory capital or other similar factors. Securities available-for-sale are recorded at market value with unrealized gains and losses net of any tax effect, added or deducted directly from shareholders' equity. Securities carried in trading accounts are carried at market value with unrealized gains and losses reflected in income. Realized and unrealized gains and losses are based on the specific identification method. Prior to 1994, securities available for sale and marketable equity securities were recorded at the lower of aggregate cost or market value. MORTGAGE LOANS HELD FOR SALE--Mortgage loans held for sale are carried at the lower of aggregate cost or market. The cost of mortgage loans held for sale is the mortgage note amount plus certain net origination costs less discounts collected. The aggregate cost of mortgage loans held for sale at December 31, 1995 and 1994 is less than their aggregate net realizable value. Gains or losses on the sale of Federal National Mortgage Association mortgage-backed securities are recognized on the earlier of the date settled or the date that a forward commitment to deliver a security to a dealer is effectively offset by a commitment to buy a similar security (paired off). These gains or losses are included in other income. LOANS--Loans are stated at face value, net of unearned income and allowance for possible loan losses. Interest income on loans is recognized under the "interest" method except for certain installment loans where interest income is recognized under the "Rule of 78's" (sum-of-the-months digits) method, which does not produce results significantly different from the "interest" method. Nonrefundable fees and costs associated with originating or acquiring loans are recognized under the interest method as a yield adjustment over the life of the corresponding loan. ALLOWANCE FOR POSSIBLE LOAN LOSSES--BancGroup adopted SFAS No. 114, Accounting by Creditors for Impairment of a Loan, as amended by SFAS No. 118, Accounting by Creditors for Impairment of a Loan-- Income Recognition Disclosure, on January 1, 1995. Under the new standards, a loan is considered impaired, based on current information and events, if it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Uncollateralized loans are measured for impairment based on the present value of expected future cash flows discounted at the historical effective interest rate, while all collateral-dependent loans are measured for impairment based on the fair value of the collateral. The adoption of SFAS 114 and 118 resulted in no additional provision for credit losses at January 1, 1995. At December 31, 1995, the recorded investment in loans for which impairment has been recognized in accordance with SFAS 114 totaled $13,366,000 and these loans had a corresponding valuation allowance 45 32 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES - -------------------------------------------------------------------------------- of $4,517,000. The impaired loans at December 31, 1995, were measured for impairment based primarily on the value of underlying collateral. For the year ended December 31, 1995, the average recorded investment in impaired loans was approximately $16,036,000. BancGroup recognized approximately $799,000 of interest on impaired loans during the portion of the year that they were impaired. BancGroup uses several factors in determining if a loan is impaired under SFAS No. 114. The internal asset classification procedures include a thorough review of significant loans and lending relationships and include the accumulation of related data. This data includes loan payment status, borrower's financial data, and borrowers' operating factors such as cash flows, operating income or loss, etc. The allowance for loan losses is established through charges to earnings in the form of a provision for loan losses. Increases and decreases in the allowance due to changes in the measurement of the impaired loans are included in the provision for loan losses. Loans continue to be classified as impaired unless they are brought fully current and the collection of scheduled interest and principal is considered probable. When a loan or portion of a loan is determined to be 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 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 base is limited to that which would have been recognized on the recorded loan balance at the contractual interest rate. Receipts in excess of that amount are recorded as recoveries to the allowance for loan losses until prior charge offs have been fully recovered. 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. 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 twenty years for the excess of cost over tangible and identified intangible assets acquired and ten years for deposit core base intangibles using the straight-line method. The recoverability of intangible assets is reviewed periodically based on the current earnings of acquired entities. If warranted, analysis, including undiscounted income projections, are made to determine if adjustments to carrying value or amortization periods are necessary. MORTGAGE SERVICING RIGHTS--BancGroup adopted SFAS No. 122, Accounting for Mortgage Servicing Rights, in May 1995 effective January 1,1995. This statement amends certain provisions of SFAS No. 65 to substantially eliminate the accounting distinction between rights to service mortgage loans for others that are acquired through loan origination activities and those acquired 46 33 through purchase transactions. The statement requires an allocation of the total cost of mortgage loans held for sale to mortgage servicing rights and mortgage loans held for sale (without mortgage servicing rights) based on their relative fair values. Mortgage servicing rights are being amortized primarily using an accelerated method in proportion to the estimated net servicing income from the related loans, which approximates a level yield method. The amortization period represents management's best estimate of the remaining loan lives. The carrying values of the mortgage servicing rights are evaluated for impairment based on their fair values categorized by year of origination or acquisition. Fair values of servicing rights are determined by estimating the present value of future net servicing income considering the average interest rate and the average remaining lives of the related mortgage loans being serviced. At December 31, 1995, BancGroup had mortgage servicing rights (included in other assets) with a net book value of $80.1 million and excess servicing rights included in other assets with a net book value of $8.1 million. The estimated combined fair value of these assets is approximately $120 million. The servicing portfolio is geographically disbursed throughout the United States with a concentration in the southern states. The mortgage servicing rights at December 31, 1995 and 1994 are stated net of accumulated amortization of approximately $25,903,000 and $27,235,000, respectively. Mortgage servicing fees are deducted from the monthly payments on mortgage loans and are recorded as income when earned. Fees from investors for servicing their portfolios of residential loans generally range from 1/4 of 1 % to 1/2 of 1% per year on the outstanding principal balance. INCOME TAXES--Effective January 1, 1993, BancGroup adopted SFAS No. 109 Accounting for Income Taxes, which changed BancGroup's method of accounting for income taxes from the deferred method required under Accounting Principles Board Opinion 11 to the asset and liability method (See Note 18). The principal difference between the asset and liability method and deferred method is that, under the asset and liability method, deferred tax assets and liabilities are adjusted to reflect changes in statutory tax rates resulting in income adjustments in the period such changes are enacted. BancGroup files a consolidated income tax return; however, income taxes are computed by each subsidiary on a separate basis, and taxes currently payable are remitted to BancGroup. EARNINGS PER SHARE--Primary earnings per share were computed based on the weighted average number of shares of common stock actually outstanding and common stock equivalents which consists of shares issuable under outstanding stock options. Fully diluted earnings per share also gives effect to shares issuable under convertible debenture agreements. ADVERTISING COSTS--Advertising costs are expensed as incurred. Advertising expense was $3,592,000 and $2,585,000 for the years ended December 31, 1995 and 1994, repectively. RECENTLY ISSUED ACCOUNTING STANDARDS--In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of (SFAS No. 121). This statement requires that long-lived assets and certain identifiable intangibles to be held and used by the entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If the future undiscounted cash flows expected to result from the use of the asset and its eventual disposition are less than the carrying amount of the asset, an impairment loss is recognized. This statement also requires that long-lived assets and certain intangibles to be disposed of be reported at the lower of carrying amount of fair value less cost to sell. SFAS No. 121 is effective for fiscal years beginning after December 15, 1995. Management does not believe that the adoption of SFAS No. 121 will have a material impact on BancGroup's financial statements. The Financial Accounting Standards Board issued SFAS No. 123, Accounting for Stock-Based Compensation, (SFAS No. 123) in October 1995. This statement defines a fair value based method of accounting for an employee stock option or similar equity instrument. However, SFAS No. 123 allows an entity to continue to measure compensation costs for those plans using the intrinsic value based method of accounting prescribed by APB Opinion No. 25, Accounting for Stock Issued to Employees. Entities electing to remain with the accounting in Opinion No. 25 must make proforma disclosures of net income and earnings per share as if the fair value based method of accounting defined in SFAS No. 123 had been applied. Under the fair value based method, compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. Under the intrinsic value based method, compensation cost is the excess, if any, of the quoted market price of the stock at the grant date or other measurement date over the amount an employee must pay to acquire the stock. SFAS No. 123 is effective for fiscal years beginning after December 15, 1995. BancGroup has elected to continue to measure compensation cost for their stock option plan under the provisions in APB Opinion 25. 2. ACQUISITIONS On February 17, 1995, BancGroup acquired Colonial Mortgage Company (CMC) and its parent company, The Colonial Company (TCC). At the acquisition date TCC's only asset was its investment in CMC. BancGroup issued 2,272,727 shares of its common stock and assumed the debts of TCC. At acquisition, the acquired entities had total assets of $71 million, total liabilities of $64 million, and total stockholders' equity of $7 million. This business combination by entities under common control was accounted for in a manner similar to a pooling-of-interests. 47 34 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES - -------------------------------------------------------------------------------- The following tables show the effect of the above transaction on results of operations for the periods prior to the merger and shareholders' equity at January 1, 1993 (earliest date presented).
Period from January 1 through (In thousands) February 17, 1995 1994 1993 - ---------------------------------------------------------------- Total Revenue: BancGroup $21,279 $122,806 $ 93,693 CMC 4,193 26,118 28,795 Combined 25,472 148,924 122,488 Net Income (loss): BancGroup 5,230 27,671 18,709 CMC 242 (361) 3,184 Combined 5,472 27,310 21,893 Jan. 1, 1993 Effect as Previously of Jan. 1, 1993 Reported Combination as Restated - ----------------------------------------------------------------- Common Stock $16,600 $ 5,682 $ 22,282 Additional paid in capital 61,134 (1,128) 60,006 Retained Earnings 17,968 150 18,118 - ----------------------------------------------------------------- Total Shareholders Equity $95,702 $ 4,704 $100,406 =================================================================
The combined financial results presented above include an adjustment made to conform accounting policies of the two companies. The adjustment was the restatement of CMC's 1993 net income for the cumulative effect of change in accounting principle to SFAS 109, which CMC previously adopted and had elected to apply retroactively to 1991. The adjustment increased net income $2,059,000 in 1993. Material intercompany transactions between the two companies have been eliminated in consolidation. During 1995, three additional acquisitions were consummated; the following table represents those acquisitions.
(Dollars in thousands) Common Acquisition Stock Issued Bank Date Shares Value - ------------------------------------------------- Brundidge Banking Company March 31 266,434 $6,209 Mt. Vernon Financial Corp. October 20 521,720 14,608 Farmers and Merchants Bank November 3 256,843 6,999
The value of the shares issued represents the total purchase price of Brundidge Banking and Mt. Vernon Financial. Farmers and Merchants Bank shareholders received $3 million cash in addition to the $7 million in stock. The financial institutions acquired were accounted for as purchases and, accordingly, income and expenses of such institutions are included in the consolidated statements of BancGroup from the date of acquisition forward. The following table presents unaudited proforma results of operations for the years ended December 31, 1995 and 1994, after giving effect to amortization of goodwill and other proforma adjustments, as if the acquisitions had occurred at the beginning of the years presented. The proforma summary information does not necessarily reflect the results of operations as they actually would have been, if the acquisition had occurred at the beginning of the years presented.
(In thousands, except per share amounts) 1995 1994 - --------------------------------------------------- (Unaudited) Net interest income before provision for possible loan losses $ 122,344 $115,184 Net income 39,772 29,888 Earnings per share: Primary 3.03 2.29 Fully-diluted 2.94 2.25 Average shares outstanding: Primary 13,119 13,041 Fully-diluted 13,882 13,808 ====================================================
The following chart summarizes the assets acquired and the liabilities assumed in connection with the 1995 acquistions.
(In thousands) Total - ------------------------------------------- Cash and due $ 5,889 Interest-bearing deposits in banks 987 Federal funds sold 16,325 Securities available for sale 25,557 Investment securities 11,456 Loans, net 249,086 Other real estate owned 68 Accured interest and other assets 9,941 Deposits 247,848 Short-term borrowings 40,000 Other long-term debt 3,541 Other liabilities 11,421 Equity 27,816 - ------------------------------------------- Excess of cost over tangible and identified intangible assets acquired, net $11,317 ===========================================
BancGroup has entered into three separate definitive agreements with Southern Banking Corporation, Commercial BancCorp of Georgia, Inc. and Dothan Federal Savings Bank. The financial institutions have combined total assets of approximately $485 million. These pending acquisitions are subject to the respective Company's shareholder approval and various regulatory approvals among other conditions and are expected to close in the second or third quarter of 1996. The aggregate purchase price of these pending acquisitions is approximately $90 million, comprised of $2.6 million in cash and approximately 2.9 million shares of BancGroup Common Stock. On May 20, 1994, BancGroup purchased certain assets totaling $596,000 and assumed certain liabilities, primarily deposits, totaling $15,871,000 of Altus Federal Savings Bank in Tallassee and Eufaula, Alabama, from the Resolution Trust Corporation. 48 35 3. SECURITIES The carrying and market values of investment securities are summarized as follows:
INVESTMENT SECURITIES (In thousands) 1995 1994 - --------------------------------------------------------------------------------------------------------------------------- Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market Cost Gains Losses Value Cost Gains Losses Value - --------------------------------------------------------------------------------------------------------------------------- U.S. Treasury securities and obligations of U.S. government agencies $212,513 $3,820 $(1,615) $ 214,71 $270,993 $175 $ (9,936) $261,832 Obligations of state and political subdivisions 46,613 1,244 (128) 47,72 40,312 499 (881) 39,930 Other 10,367 7 (21) 10,35 15,294 29 (263) 15,060 - --------------------------------------------------------------------------------------------------------------------------- Total $269,493 $5,071 $(1,764) $272,800 $326,599 $703 $(10,480) $316,822 ===========================================================================================================================
The carrying and market values of securities available for sale are summarized as follows:
SECURITIES AVAILABLE FOR SALE (In thousands) 1995 1994 - --------------------------------------------------------------------------------------------------------------------------- Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market Cost Gains Losses Value Cost Gains Losses Value - --------------------------------------------------------------------------------------------------------------------------- U.S. Treasury securities and obligations of U.S government agencies $128,873 $1,590 $(1,106) $129,357 $70,327 $ 28 $(4,855) $65,500 Obligations of state and political subdivisions 560 10 570 5 5 Other 29,090 902 (56) 29,936 12,639 407 (286) 12,760 - --------------------------------------------------------------------------------------------------------------------------- Total $158,523 $2,502 $(1,162) $159,863 $82,971 $ 435 $(5,141) $78,265 ===========================================================================================================================
The market values of obligations of states and political subdivisions were established with the assistance of an independent pricing service. They were based on available market data reflecting transactions of relatively small size and not necessarily indicative of the prices at which large amounts of particular issues could be readily sold or purchased. Included within other investment securities are $10,000,000 in marketable equity securities at December 31, 1995 and 1994. Included within securities available for sale is $23,952,000 and $11,327,000 in Federal Home Loan Bank stock at December 31, 1995 and 1994, respectively. Securities with a carrying value of approximately $306,393,000 and $308,081,000 at December 31, 1995 and 1994 respectively, were pledged for various purposes as required or permitted by law. Gross gains of $18,000, $217,000 and $21,000 and gross losses of $15,000, $133,000 and $1,000 were realized on sales of securities for 1995, 1994, and 1993, respectively. The amortized cost and market value of debt securities at December 31, 1995, by contractual maturity, are as follows. Expected maturities differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Securities Available Investment Securities For Sale - -------------------------------------------------------------- Amortized Market Amortized Market (In thousands) Cost Value Cost Value - -------------------------------------------------------------- Due in one year or less $ 48,663 $ 48,919 $ 30,184 $ 30,120 Due after one year through five years 142,983 145,977 42,402 43,595 Due after five years through ten years 14,544 15,124 5,109 5,455 Due after ten years 2,991 3,154 -- -- - ------------------------------------------------------------ 209,181 213,174 77,695 79,170 Mortgage-backed securities 50,312 49,506 56,939 56,810 - ------------------------------------------------------------ Total $259,493 $262,680 $134,634 $135,980 ============================================================
During 1995 and pursuant to a FASB Special Report, A Guide to Implementation of Statement 115 on Accounting for Certain Investments in Debt and Equity Securities, BancGroup transferred approximately $37,959,000 from Investment Securities to Securities Available for Sale. 49 36 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES - ------------------------------------------------------------------------------ 4. LOANS A summary of loans follows:
(In thousands) 1995 1994 - ------------------------------------------------- Commercial, financial, and agricultural $ 363,108 $ 298,708 Real estate--commercial 646,260 574,155 Real estate--construction 234,535 152,423 Real estate--mortgage 1,388,759 857,639 Installment and consumer 199,482 169,577 Other 43,667 41,577 - ------------------------------------------------- Subtotal $2,875,811 $2,094,079 Unearned income (230) (51) - ------------------------------------------------- Total $2,875,581 $2,094,028 =================================================
BancGroup's lending is concentrated throughout Alabama, southern Tennessee and central Georgia, and repayment of these loans is in part dependent upon the economic conditions in the respective regions of the states. Management does not believe the loan portfolio contains concentration of credits either geographically or by borrower which would expose BancGroup to unacceptable amounts of risk. Management continually evaluates the potential risk in all segments of the portfolio in determining the adequacy of the allowance for possible loan losses. Other than concentrations of credit risk in Alabama and commercial real estate loans in general, management is not aware of any significant concentrations. BancGroup evaluates each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by BancGroup upon extension of credit, is based on management's credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, residential houses and income-producing commercial properties. No additional credit risk exposure, relating to outstanding loan balances, exists beyond the amounts shown in the consolidated statement of condition at December 31, 1995. In the normal course of business, loans are made to officers, directors, principal shareholders and to companies in which they own a significant interest. Such loans aggregated approximately $29.6 million and $48.7 million at December 31, 1995 and 1994, respectively. Loan activity to officers, directors, principal shareholders and to companies in which they own a significant interest which aggregated a loan balance of more than $60,000 during the year ended December 31, 1995 are summarized as follows:
(In thousands) Balance Balance 1/1/95 Additions Repayments 12/31/95 - ----------------------------------------------- $48,728 $32,504 $51,616 $29,616
5. ALLOWANCE FOR POSSIBLE LOAN LOSSES An analysis of the allowance for possible loan losses is as follows:
(In thousands) 1995 1994 1993 - ----------------------------------------------- Balance, January 1 $33,410 $28,633 $18,769 Addition due to acquisitions 1,129 27 6,276 Provision charged to income 5,480 6,481 7,945 Loans charged off (5,340) (5,141) (6,666) Recoveries 2,233 3,410 2,309 - ----------------------------------------------- Balance, December 31 $36,912 $33,410 $28,633 ===============================================
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 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 and standby letters of credit is represented by the contractual amount of those instruments. BancGroup uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. BancGroup has no significant concentrations of credit risk with any individual counterparty to originate loans. The total amounts of financial instruments with off-balance sheet risk as of December 31, 1995 are as follows:
(In thousands) Contract Amount - ----------------------------------------- Financial instruments whose contract amounts represent credit risk: Loan commitments $410,705 Standby letters of credit 23,810 Mortgage sales commitments 121,925
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. The current market value of these commitments was $120,644,000 at December 31, 1995. Mortgage sales commitments had contract value and current market value of $56,750,000 and $56,823,000 at December 31,1994, respectively. 50 37 7. PREMISES AND EQUIPMENT Premises and equipment are summarized as follows:
(In thousands) 1995 1994 - ----------------------------------------------- Land $12,774 $11,160 Bank premises 48,560 43,032 Equipment 43,251 36,944 Leasehold improvements 3,560 3,416 Construction in progress 1,938 869 Automobiles 59 42 - ----------------------------------------------- Total 110,142 95,463 Less accumulated depreciation and amortization 54,981 49,589 - ----------------------------------------------- Premises and equipment, net $55,161 $45,874 ===============================================
8. SHORT-TERM BORROWINGS Short-term borrowings are summarized as follows:
(In thousands) 1995 1994 1993 - -------------------------------------------------------- Federal funds purchased and securities sold under repurchase agreements $131,115 $133,419 $104,818 FHLB borrowings 465,000 210,000 190,150 Other short-term borrowings 1,141 1,131 1,000 - -------------------------------------------------------- Total $597,256 $344,550 $295,968 ========================================================
BancGroup had outstanding term notes (Note 9) of which the current portion, $1,000,000, is included in other short-term borrowings at December 31, 1995 and 1994. BancGroup became a member of the Federal Home Loan Bank (FHLB) in late 1992. Based on its investment in the FHLB and other factors at December 31, 1995, BancGroup can borrow up to $850 million from the FHLB on either a short or long-term basis. At December 31, 1995, $465,000,000 was outstanding. FHLB has a blanket lien on BancGroup's 1-4 family mortgage loans in the amount of the outstanding debt. Additional details regarding short-term borrowings are shown below:
(In thousands) 1995 1994 1993 - -------------------------------------------------------------- Average amount outstanding during the year $477,785 $235,598 $195,752 Maximum amount outstanding at any month-end 597,256 344,550 309,714 Weighted average interest rate: During year 6.12% 4.42% 3.20% End of year 5.78% 5.62% 3.20% - --------------------------------------------------------------
9. LONG-TERM DEBT Long-term debt is summarized as follows:
(In thousands) 1995 1994 - ------------------------------------- 12 3/4% convertible subordinated debentures $ 7,483 $ 7,494 7 1/2% convertible subordinated debentures 9,637 9,964 Term note 10,250 11,250 Line of credit 6,249 FHLB advances 5,516 2,530 REMIC bonds 7,024 8,613 Purchased servicing notes payable -- 46,650 - ------------------------------------- Total $46,159 $86,501 =====================================
The 12 3/4% Convertible Subordinated Debentures due December 15, 2000 ("1985 Debentures") were issued in connection with the acquisition of a bank. The 1985 Debentures are redeemable, at the option of BancGroup, ten years from the date of issuance at face value plus accrued interest. At the option of the holder, each 1985 Debenture may be converted into BancGroup Common Stock at the conversion price of $18.25 principal amount of 1985 Debentures, subject to adjustment upon the occurrence of certain events, for each share of stock received. In January, 1996, BancGroup called the 12 3/4% subordinated debentures. As a result, 403,299 shares of BancGroup Common Stock were issued and cash was paid for the remaining debentures. The 7 1/2% Convertible Subordinated Debentures due March 31, 2011 ("1986 Debentures") issued in 1986 are convertible at any time into shares of BancGroup Common Stock, at the conversion price of $28.00 principal amount of 1986 Debentures, subject to adjustment upon the occurrence of certain events, for each share of stock received. The 1986 Debentures are redeemable at the option of BancGroup at the face amount plus accrued interest. In the event all of the remaining 1986 Debentures are converted into shares of BancGroup Common Stock in accordance with the 1986 Indenture, a total of 343,898 shares of such Common Stock will be issued. On August 11, 1993, BancGroup redeemed $15 million of the 1986 Debentures at 102.25%. The redemption resulted in an extraordinary loss of $746,000 ($463,000, net of tax). The redemption also reduced by 535,000 the number of fully diluted shares outstanding. The redemption was funded primarily by the term note discussed in the following paragraph. BancGroup has a term note with $11,250,000 outstanding at December 31, 1995. (Also see Note 8.)The term note is payable in annual installments of $1,000,000 with the balance due in 1998. BancGroup also has a line of credit with the same financial institution totaling $15 million of which $6,249,000 is outstanding at December 31, 1995. The line of credit is due at maturity in August 1997. The term note and the line of credit bear interest at a rate of 1.5% above LIBOR. All 51 38 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES - -------------------------------------------------------------------------------- of the capital stock of BancGroup's subsidiary banks is pledged as collateral. The agreements contain restrictive covenants which, among other things, limit the sale of assets, incurrence of additional indebtedness, repurchase of BancGroup stock, and requires BancGroup to maintain certain specified financial ratios. BancGroup had long-term Federal Home Loan Bank (FHLB) Advances outstanding of $5,516,000 and $2,530,000 at December 31, 1995 and 1994, respectively. These advances bear interest rates of 4% to 7.53% and mature from 1999 to 2011. BancGroup, with the acquisition of First AmFed, also assumed the real estate mortgage investment conduit (REMIC) bonds through a conduit, Service Financial Corporation, a subsidiary of Colonial Bank. These bonds were series A (four classes) with an original principal amount of $28,123,000 and a coupon interest rate of 7.875%. As of December 31, 1995 the bonds have an outstanding balance of $7,024,000 and are collateralized by FNMA mortgaged-backed securities with a carrying value of $6,971,000. The collections on these securities are used to pay interest and principal on the bonds. Only Class A-3 and A-4 bonds remain outstanding. The REMIC bonds are summarized in the following table:
Balance at Expected December 31, 1995 Class Maturity (In thousands) - ---------------------------------------------------------------------------------------------------- A-3 June 1, 2007 $2,658 A-4 September 1, 2017 4,366 - ---------------------------------------------------------------------------------------------------- Total $7,024 ====================================================================================================
At December 31, 1995, 1ong-term debt, including the current portion, is scheduled to mature as follows:
(In thousands) - ------------------------------------------------------------------------------------------------- 1996 $ 1,141 1997 7,399 1998 9,411 1999 366 2000 17 Thereafter 28,966 - ------------------------------------------------------------------------------------------------- Total $47,300 =================================================================================================
At December 31, 1994, Colonial Mortgage had purchased servicing notes payable with various lenders with interest rates that ranged from 9.0% fixed to prime, reduced by compensating balance credits limited to a base rate of 1.5%, due monthly and quarterly. The Colonial Mortgage purchased servicing notes payable were paid in full immediately following the merger. 10. CAPITAL STOCK Effective February 21, 1995 the Class A Common Stock and the Class B Common Stock were reclassified into one class of stock called Common Stock, $2.50 par value, with equal rights for all shareholders. The Board of Directors is authorized to issue shares of the preference stock in one or more series, and in connection with such issuance, to establish the relative rights, preferences, and limitations of each such series. Prior to the reclassification the holders of Class A Common Stock had limited voting rights compared with the holders of Class B Common Stock. The holders of the Class A Common Stock were entitled to elect, voting as a separate class, up to 25% (rounded up to the nearest whole number) of the entire Board of Directors of BancGroup, and the holders of the Class B Common Stock were entitled to elect the remaining directors. On all other matters coming before the stockholders of BancGroup, except matters for which Delaware law requires a class vote, the holders of the Class A Common Stock were entitled to one twentieth (1/20) of one (1) vote per share and the holders of the Class B Common Stock were entitled to one (1) vote per share. Stockholders of BancGroup may not act by written consent or call special meetings. At the option of the holder of record, and subject to adjustment to avoid dilution in the event of certain occurrences, each share of BancGroup Class B Common Stock was convertible at any time into one share of Class A Common Stock. Shares of Class A Common Stock were not convertible into any other securities of BancGroup. 11. REGULATORY RESTRICTIONS Dividends payable by national and state banks in any year, without prior approval of the appropriate regulatory authorities, are limited to the bank's net profits (as defined) for that year combined with its retained net profits for the preceding two years. Under these limitations, approximately $54.0 million of retained earnings plus certain 1996 earnings would be available for distribution to BancGroup as dividends in 1996 without prior approval from the respective regulatory authorities. The subsidiary banks are required by law to maintain noninterest-bearing deposits with the Federal Reserve Bank to meet regulatory reserve requirements. At December 31,1995, these deposits totaled $47.4 million. 12. LEASES BancGroup and its subsidiaries have entered into certain noncancellable leases for premises and equipment used in connection with its operations. The majority of these noncancellable lease agreements contain renewal options for varying periods at the same or renegotiated rentals, and several contain purchase options at fair value. Future minimum lease payments under all noncancellable operating leases with initial or remaining terms (exclusive of renewal options) of one year or more at December 31, 1995 were as follows:
(In thousands) - --------------------------------------------------- 1996 $ 3,935 1997 3,159 1998 2,362 1999 1,963 2000 1,859 Thereafter 5,062 - --------------------------------------------------- Total $18,340 ===================================================
Rent expense for all leases amounted to $5,299,000 in 1995, $4,393,000 in 1994 and $3,638,000 in 1993. 52 39 13. EMPLOYEE BENEFIT PLANS BancGroup and its subsidiaries are participants in a pension plan with certain other related companies. This plan covers most employees who have met certain age and length of service requirements. BancGroup's policy is to contribute annually an amount that can be deducted for federal income tax purposes using the frozen entry age actuarial method. Actuarial computations for financial reporting purposes are based on the projected unit credit method. For purposes of determining the actuarial present value of the projected benefit obligation, the weighted average discount rate was 7.25% for 1995, 8.5% for 1994 and 7% for 1993. The rate of increase in future compensation levels was 4.00% for 1995, 5.00% for 1994, and 4.25% for 1993. The expected long-term rate of return on assets was 9% for 1995, 1994, and 1993. Employee pension benefit plan status at December 31:
(In thousands) 1995 1994 - ---------------------------------------------------------- Actuarial present value of benefit obligations: Accumulated benefit obligation $10,211 $ 6,405 Vested benefit obligation $ 9,244 $ 6,557 Projected benefit obligation for service rendered to date $13,811 $ 9,029 Plan assets at fair value $11,567 $ 8,994 - ---------------------------------------------------------- Plan assets under projected benefit obligation (2,244) (35) Unrecognized net gain from past experience different from that assumed and effects of changes in assumptions (716) (1,879) Unrecognized prior service cost (288) (299) Prior service cost due to January 1995 Plan change 354 Unrecognized net asset at January, 1986 being recognized over 19 years (38) (42) - ---------------------------------------------------------- Accrued pension cost $(2,932) $(2,255) ==========================================================
(In thousands) 1995 1994 1993 - ---------------------------------------------------------------- Net pension cost included the following components: Service cost $873 $849 $616 Interest cost 962 619 538 Actual return on plan assets (851) (614) (442) Net amortization and deferral (6) (27) (147) - ---------------------------------------------------------------- Net pension cost $978 $827 $565 ================================================================
At December 31, 1995 and 1994, the pension plan assets included investments in BancGroup Common Stock of 7% and 5% respectively. Pension plan assets are distributed approximately 11% in U.S. Government and agency issues, 37% in Corporate bonds and 44% in equity securities including BancGroup Common Stock and 1% in preferred stock. BancGroup also has an incentive savings plan (the "Savings Plan") for all of the employees of BancGroup and its subsidiaries. The Savings Plan, provides certain retirement, death, disability and employment benefits to all eligible employees and qualifies as a deferred arrangement under Section 401(k) of the Internal Revenue Code. Participants in the Savings Plan make basic contributions and may make supplemental contributions to increase benefits. BancGroup contributes a minimum of 50% of the basic contributions made by the employees and may make an additional contribution from profits on an annual basis. An employee's interest in BancGroup's contributions becomes 100% vested after five years of participation in the Savings Plan. Participants have options as to the investment of their Savings Plan funds, one of which includes purchase of Common Stock of BancGroup. Charges to operations for this plan amounted to $678,000, $559,000 and $452,000 for 1995, 1994 and 1993, respectively. 14. STOCK PLANS The 1992 Incentive Stock Option Plan ("the 1992 Plan") provides an incentive to certain officers and key management employees of BancGroup and its subsidiaries. Options granted under the 1992 Plan must be at a price not less than the fair market value of the shares at the date of grant. All options expire no more than ten years from the date of grant, or three months after an employee's termination. An aggregate of 550,000 shares of Common Stock are reserved for issuance under the 1992 Plan. At December 31, 1995 and 1994, 488,519 and 429,269 shares, respectively remained available for the granting of options under the 1992 Plan. The 1992 Nonqualified Stock Option Plan ("the 1992 Nonqualified Plan") provides an incentive to directors, officers and employees of BancGroup and its subsidiaries. Options granted under the 1992 Nonqualified Plan must be at a price not less than 85% of the fair market value of the shares at the date of grant. All options expire no more than ten years after the date of grant, or three months after an employee's termination. An aggregate of 800,000 shares of Common Stock are reserved for issuance under the 1992 Nonqualified Plan. At December 31,1995 and 1994, 782,750 and 786,500 shares, respectively remained available for the granting of options under the 1992 Nonqualified Plan. Prior to 1992, BancGroup had both a qualified incentive stock option plan ("Plan") under which options were granted at a price not less than fair market value and a nonqualified stock option plan ("Nonqualified Plan") under which options were granted at a price not less than 85% of fair market value. All options under the plans expire ten years from the date of grant, or three months after the employee's termination. Although options previously granted under these plans may be exercised, no further options may be granted. 53 40 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES - -------------------------------------------------------------------------------- Following is a summary of the transactions in Common Stock under these plans for the years ended December 31, 1995, 1994 and 1993.
Shares Under Option - -------------------------------------------------------------------------------------- Nonqualified Plans Plans - -------------------------------------------------------------------------------------- Outstanding at December 31, 1992 68,830 199,620 Granted (at $4.25- $15.73 per share) 57,731 13,500 Exercised (at $6.16- $6.38 per share) (2,500) (18,850) - ------------------------------------------------------------------------------------ Outstanding at December 31, 1993 124,061 194,270 Exercised (at $4.25- $13.00 per share) (52,078) (15,000) - ------------------------------------------------------------------------------------ Outstanding at December 31, 1994 71,983 179,270 Granted (at $16.89- $19.88 per share) 3,750 3,750 Exercised (at $6.16- $17.48 per share) (33,519) (6,000) - ------------------------------------------------------------------------------------- Outstanding at December 31, 1995 42,214 177,020 - -------------------------------------------------------------------------------------
At December 31, 1995, the total shares outstanding and exercisable under these option plans were as follows:
- --------------------------------------------------------------------------------------------- Aggregate Range of Option Option Prices Shares Price - --------------------------------------------------------------------------------------------- $6.16-$6.38 159,770 $ 986,384 $7.25 23,364 169,389 $9.75-$11.48 1,600 15,600 $15.73-$19.88 34,500 599,993 - --------------------------------------------------------------------------------------------- Total 219,234 $1,771,366 =============================================================================================
In 1987 BancGroup adopted the Restricted Stock Plan for Directors ("Directors Plan") whereby directors of BancGroup and its subsidiary banks may receive Common Stock in lieu of cash director fees. The election to participate in the Directors Plan is made at the inception of the director's term except for BancGroup directors who make this election six months prior to the inception of their term. Shares earned under the plan for regular fees are issued quarterly while supplemental fees are issued annually. All shares become vested at the expiration of the director's term. During 1995, 1994 and 1993, respectively, 17,024, 14,267, and 13,116 shares of Common Stock were issued under the Directors Plan, representing approximately $326,000, $284,000, and $197,000 in directors' fees for 1995, 1994 and 1993, respectively. In 1992 BancGroup adopted the Stock Bonus and Retention Plan to promote the long-term interests of BancGroup and its shareholders by providing a means for attracting and retaining officers, employees and directors by awarding Restricted Stock which shall vest 20% per year commencing on the first anniversary of the award. An aggregate of 750,000 shares have been reserved for issuance under this Plan. There were 25,650 shares outstanding of which 130 shares were vested at December 31, 1995. In 1994 BancGroup adopted the Employee Stock Purchase Plan which provides salaried employees of BancGroup with a convenient way to become shareholders of BancGroup. The participant authorizes a regular payroll deduction of not less than $10 or more than 10% of salary. The participant may also contribute whole dollar amounts of not less than $100 or more than $1,000 each month toward the purchase of the stock at market price. There are 150,000 shares authorized for issuance under this Plan. There were 6,221 shares issued and outstanding under this Plan at December 31, 1995. 15. CONTINGENCIES BancGroup and its subsidiary banks are from time to time defendants in legal actions from normal business activities. Management does not anticipate that the ultimate liability arising from litigation outstanding at December 31, 1995, will have a materially adverse effect on BancGroup's financial statements. Due to current congressional proposals to recapitalize the Savings Association Insurance Fund (SAIF), the Company may incur a one-time charge when the proposed legislation is enacted. At December 31, 1995, BancGroup had approximately $791 million in deposits which would be subject to such an assessment. 16. RELATED PARTIES Most of the insurance coverage for vendor single interest, credit life, and accident and health insurance is provided to customers of BancGroup's subsidiary bank by companies owned by a principal shareholder and a director of BancGroup. Premiums collected from customers and remitted to these companies on such insurance were approximately $1,712,000, $2,242,000 and $1,287,000, in 1995, 1994 and 1993, respectively. BancGroup, Colonial Bank and Colonial Mortgage lease premises, including their principal corporate offices, and airplane services from companies owned by principal shareholders of BancGroup. Amounts paid under these leases and agreements approximated $3,100,000, $2,300,000 and $1,900,000 in 1995, 1994 and 1993, respectively. During 1995, 1994 and 1993, BancGroup and its subsidiaries paid or accrued fees of approximately $1,306,000, $1,326,000 and $949,000, respectively, for legal services required of law firms in which a partner of the firm serves on the Board of Directors. 54 41 17. OTHER EXPENSE The following charges have been included in Other Expense:
(In thousands) 1995 1994 1993 - ------------------------------------------------ Stationery, printing, and supplies $ 2,588 $ 2,703 $ 2,692 Postage 1,884 1,609 1,514 Telephone 3,129 2,834 2,539 Insurance 1,306 1,645 1,410 Legal fees 2,081 2,635 1,690 Advertising and public relations 3,592 2,585 1,579 FDIC assessment 3,323 4,643 3,527 Other 17,613 15,430 13,704 - ------------------------------------------------ Total $35,516 $34,084 $28,655 ================================================
18. INCOME TAXES The components of income taxes were as follows:
(In thousands) 1995 1994 1993 - -------------------------------------------- Currently payable Federal $20,267 $15,021 $10,835 State 2,047 1,115 1,070 Deferred (1,201) (1,794) (3,019) - -------------------------------------------- Total $21,113 $14,342 $8,886 ============================================
BancGroup adopted SFAS No.109 as of January 1, 1993, as described in Note 1. This change in accounting principle resulted in a $3,219,000 ($.29 per fully-diluted share) credit being reported as the cumulative effect of a change in accounting for income taxes in the 1993 statement of income. The reasons for the difference between income tax expense and the amount computed by applying the statutory federal income tax rate to income before income taxes are as follows:
(In thousands) 1995 1994 1993 - ---------------------------------------------------------------------------------------------- Tax at statutory rate on income from operations $20,967 $14,578 $9,808 Add: State income taxes, net of federal tax benefit 1,331 746 566 Amortization of net purchase accounting adjustments 199 455 375 Other 515 171 (187) - ---------------------------------------------------------------------------------------------- Total 23,012 15,950 10,562 ============================================================================================== Deduct: Nontaxable interest income 1,647 1,375 1,251 Dividends received deduction 252 233 425 - ---------------------------------------------------------------------------------------------- Total 1,899 1,608 1,676 - ---------------------------------------------------------------------------------------------- Total income taxes $21,113 $14,342 $8,886 ==============================================================================================
The components of BancGroup's net deferred tax asset as of December 31,1995 and 1994, were as follows:
(In thousands) 1995 1994 - ---------------------------------------------------------------------------------------------------------- Deferred tax assets: Allowance for possible loan losses $13,879 $12,260 Pension accrual in excess of contributions 755 681 Accumulated amortization of mortgage servicing rights 2,869 3,258 Acquisition related accruals 547 48 Other real estate owned writedowns 1,270 1,311 Other liabilities and reserves 1,195 344 Deferred loan fees, net 37 699 Securities valuation reserve 105 105 Excess healthcare contributions 469 715 Unrealized loss on securities available for sale -- 1,781 Other 1,000 1,412 - ---------------------------------------------------------------------------------------------------------- Total deferred tax asset 22,126 22,614 ========================================================================================================== Deferred tax liabilities: Accelerated tax depreciation 297 236 Accumulated accretion/discount on bonds 487 1,627 Differences between financial reporting and tax bases of net assets acquired 1,124 984 Stock dividends received 1,449 906 Prepaid FDIC assessment 407 827 Loan loss reserve recapture 2,248 2,727 Unrealized gain on securities available for sale 314 -- Other 1,561 174 - ---------------------------------------------------------------------------------------------------------- Total deferred tax liability 7,887 7,481 ========================================================================================================== Net deferred tax asset $14,239 $15,133 ==========================================================================================================
The net deferred tax asset is included as a component of accrued interest and other assets in the Consolidated Statement of Condition. BancGroup did not establish a valuation allowance related to the net deferred tax asset due to taxes paid within the carryback period being sufficient to offset future deductions resulting from the reversal of these temporary differences. 19. FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: - - CASH AND CASH EQUIVALENTS--For these short-term instruments, the carrying amount is a reasonable estimate of fair value. - - INVESTMENT SECURITIES AND SECURITIES AVAILABLE FOR SALE--For debt securities and marketable equity securities held either for investment purposes or for sale, fair value equals quoted market price, if avail- 55 42 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES - -------------------------------------------------------------------------------- able. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities. - - MORTGAGE LOANS HELD FOR SALE--For these short-term instruments, the fair value is determined from quoted current market prices. - - MORTGAGE SERVICING RIGHTS AND EXCESS SERVICING FEES--Fair value is estimated by discounting future cash flows from servicing fees using discount rates that approximate current market rates. - - LOANS--For loans, the fair value is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. - - DEPOSITS--The fair value of demand deposits, savings accounts and certain money market deposits is the amount payable on demand at December 31, 1995 and 1994. The fair value of fixed-maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities. - - SHORT-TERM BORROWINGS--For these short-term instruments, the carrying amount is a reasonable estimate of fair value. - - LONG TERM DEBT--Rates currently available to BancGroup for debt with similar terms and remaining maturities are used to estimate fair value of existing debt. - - COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT--The value of these unrecognized financial instruments is estimated based on the related fee income associated with the commitments, which is not material to BancGroup's financial statements at December 31, 1995 and 1994. The estimated fair values of BancGroup's financial instruments at December 31, 1995 and 1994 are as follows:
1995 1994 ---------------------------------------------------- Carrying Fair Carrying Fair (In thousands) Amount Value Amount Value ---------------------------------------------------------------------------------------- Financial assets: Cash and short-term investments $ 132,161 $ 132,161 $ 131,997 $ 131,997 Securities available for sale 159,863 159,863 78,265 78,265 Investment securities 269,493 272,800 326,599 316,822 Mortgage loans held for sale 110,486 111,952 60,536 60,736 Mortgage servicing rights and excess servicing fees 88,165 130,156 63,821 101,327 Loans 2,875,581 2,094,028 Less: allowance for loan losses (36,912) (33,410) ---------------------------------------------------------------------------------------- Loans, net 2,838,669 2,879,958 2,060,618 2,081,021 ---------------------------------------------------------------------------------------- Total $3,598,837 $3,686,890 $2,721,836 $2,770,168 ======================================================================================== Financial liabilities: Deposits $2,785,958 $2,790,055 $2,171,464 $2,154,144 Short-term borrowings 597,256 597,256 344,550 344,550 Long-term debt 46,159 53,600 86,501 82,758 ---------------------------------------------------------------------------------------- Total $3,429,373 $3,440,911 $2,602,515 $2,581,452 ========================================================================================
56 43 20. CONDENSED FINANCIAL INFORMATION OF THE COLONIAL BANCGROUP, INC. (PARENT COMPANY ONLY) STATEMENT OF CONDITION
December 31 (In thousands) 1995 1994 - -------------------------------------------------------------- ASSETS: Cash* $ 1,719 $ 1,372 Investment in subsidiaries(*) 279,691 212,268 Intangible assets 3,621 4,028 Other assets 4,478 5,857 - -------------------------------------------------------------- Total assets $289,509 $223,525 ============================================================== LIABILITIES AND SHAREHOLDERS' EQUITY: Short-term borrowings $ 1,000 $ 1,000 Subordinated debt 17,121 17,458 Other long-term debt 16,499 11,250 Other liabilities 1,741 2,266 Shareholders' equity 253,148 191,551 - -------------------------------------------------------------- Total liabilities and shareholders' equity $289,509 $223,525 ==============================================================
*Eliminated in consolidation. STATEMENT OF OPERATIONS
Years Ended December 31 - ------------------------------------------------------------------------- (In thousands) 1995 1994 1993 - ------------------------------------------------------------------------- INCOME: Cash dividends from subsidiaries* $ 13,392 $ 11,883 $10,395 Interest and dividends on short-term investments* 81 66 89 Other income 1,054 1,063 1,077 - ------------------------------------------------------------------------- Total income 14,527 13,012 11,561 ========================================================================= EXPENSES: Interest 2,616 2,486 2,702 Salaries and employee benefits 754 928 725 Occupancy expense 298 293 291 Furniture and equipment expense 89 111 135 Amortization of intangible assets 406 406 406 Other expenses 2,854 3,247 2,067 - ------------------------------------------------------------------------- Total expenses 7,017 7,471 6,326 ========================================================================= Income before income taxes, extraordinary item and equity in undistributed net income of subsidiaries 7,510 5,541 5,235 Income tax benefit 1,949 2,224 1,728 Extraordinary item, net of income taxes -- -- (463) - ------------------------------------------------------------------------- Income before equity in undistributed net income of subsidiaries 9,459 7,765 6,500 Equity in undistributed net income of subsidiaries(*) 29,335 19,545 15,393 - ------------------------------------------------------------------------- Net income $ 38,794 $ 27,310 $21,893 =========================================================================
(*)Eliminated in consolidation. 57 44 20. CONDENSED FINANCIAL INFORMATION OF THE COLONIAL BANCGROUP, INC. (continued) (PARENT COMPANY ONLY) STATEMENT OF CASH FLOWS
Years Ended December 31 (In thousands) 1995 1994 1993 - ------------------------------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income $38,794 $27,310 $21,893 Adjustments to reconcile net income to net cash provided by operating activities: Gain on sale of assets -- (7) (3) Depreciation, amorti- zation, and accretion 617 637 670 (Increase) decrease in prepaids and other assets (2,343) 86 1,077 Increase (decrease) in accrued income taxes 3,387 (727) (2,243) Increase (decrease) in accrued expenses 81 79 (122) Undistributed earnings of subsidiaries(*) (29,335) (19,545) (15,393) - ------------------------------------------------------ Total adjustments (27,593) (19,477) (16,014) - ------------------------------------------------------ Net cash provided by operating activities 11,201 7,833 5,879 - ------------------------------------------------------ CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (108) (11) (18) Proceeds from sale of premises and equipment -- 36 8 Additional investment in subsidiaries(*) (6,500) -- -- - ------------------------------------------------------ Net cash provided by (used in) investing activities (6,608) 25 (10) ======================================================
STATEMENT OF CASH FLOWS (CONTINUED)
Years Ended December 31 (In thousands) 1995 1994 1993 - ------------------------------------------------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of long-term debt 6,249 -- 15,000 Repayment of long-term debt (1,000) (2,000) (3,550) Retirement of Sub- ordinated debt -- -- (15,338) Proceeds from issuance of common stock 1,027 1,384 558 Dividends paid (10,522) (7,432) (4,847) Other, net -- -- 124 - ------------------------------------------------------ Net cash used in financing activities (4,246) (8,048) (8,053) - ------------------------------------------------------ Net (decrease) increase in cash and cash equivalents 347 (190) (2,184) Cash and cash equivalents at beginning of year 1,372 1,562 3,746 - ------------------------------------------------------ CASH AND CASH EQUIVALENTS AT END OF YEAR(*) $ 1,719 1,372 1,562 - ------------------------------------------------------ Supplemental disclosure of cash flow information: Cash paid (received) during the year for: Interest $ 2,661 $ 2,489 $ 2,674 Income taxes (700) (1,500) (24) ======================================================
(*)Eliminated in consolidation. 58 45 - -------------------------------------------------------------------------------- COMMON STOCK INFORMATION MARKET PRICE OF AND DIVIDENDS DECLARED ON COMMON STOCK BancGroup's Common Stock is traded on the New York Stock Exchange under the symbol "CNB". This trading commenced on February 24, 1995. Prior to that time, BancGroup's Class A Common Stock was traded on the over-the-counter market and was quoted on NASDAQ under the symbol "CLBGA". There was no active public trading market for the Class B Common Stock. The following table indicates the high and low closing prices for Common Stock and Class A Common Stock, for 1995 and 1994.
Sale Price of Dividends Declared Common Stock on Common Stock High Low (per share) - ----------------------------------------------------------------------------------------------- 1995 1st Quarter Class A ....................................... 23 5/8 19 1/2 $0.225 Class B ....................................... -- -- 0.125 Common ........................................ -- -- -- 2nd Quarter Common ......................................... 27 1/2 23 1/8 0.225 3rd Quarter Common ......................................... 29 7/8 27 1/2 0.225 4th Quarter Common ......................................... 32 7/8 28 1/2 0.225 - ----------------------------------------------------------------------------------------------- 1994 1st Quarter Class A ...................................... 20 1/4 18 $ 0.20 Class B ...................................... -- -- 0.10 2nd Quarter Class A ...................................... 25 19 1/4 0.20 Class B ...................................... -- -- 0.10 3rd Quarter Class A ...................................... 24 3/4 22 0.20 Class B ...................................... -- -- 4th Quarter Class A ...................................... 23 3/4 19 1/2 0.20 Class B ...................................... -- -- 0.10 - -----------------------------------------------------------------------------------------------
VOTING SECURITIES AND SHAREHOLDERS As of December 31, 1995, BancGroup had outstanding 13,084,721 shares of Common Stock, with 5,388 shareholders of record. As of December 31,1994, BancGroup had outstanding 11,280,031 shares of Class A Common Stock and 635,088 shares of Class B Common Stock, with 5,123 and 382 holders of each class, respectively. Effective February 21, 1995 the Class A Common Stock and the Class B Common Stock were reclassified into one class of stock called Common Stock. There were 11,941,613 shares of Common Stock outstanding following such reclassification with 5,196 shareholders of record. 59 EX-21 5 LIST OF SUBSIDIARIES 1 EXHIBIT 21 LIST OF SUBSIDIARIES OF THE REGISTRANT COLONIAL BANK, AN ALABAMA BANKING CORPORATION. COLONIAL BANK OF TENNESSEE, A TENNESSEE BANK. COLONIAL BANK, DUNWOODY, GEORGIA, A FEDERAL SAVINGS BANK THE COLONIAL BANCGROUP BUILDING CORPORATION, AN ALABAMA CORPORATION. EX-23.(A) 6 CONSENT OF INDEPENDENT ACCOUNTANTS 1 EXHIBIT 23(A) CONSENT OF COOPERS & LYBRAND L.L.P. CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statement of The Colonial BancGroup, Inc., on Form S-8 (File No. 2-89959), Form S-8 (File No. 33-13376), Form S-8 (File No. 33-41036), Form S-8 (File No. 33-47770), Form S-8 (File No. 33-11540), Form S-8 (File No. 33-78118), Form S-3 (File No. 33-5665), Form S-3 (File No. 33-62071), and Form S-8 (File No. 33-63347) of our report dated February 23, 1996, on our audits of the consolidated financial statements of The Colonial BancGroup, Inc., as of December 31, 1995 and 1994, and for each of the three years in the period ended December 31, 1995, which report is incorporated by reference in this Annual Report on Form 10-K. Montgomery, Alabama March 21, 1996 EX-24 7 POWER OF ATTORNEY 1 EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Robert E. Lowder, Young J. Boozer, III, and W. Flake Oakley, and each of them, his true and lawful attorney-in-fact and agent, with full power of substitution and re-substitution, for him and in his name, place and stead, to sign any reports or other filings which may be required to be filed with the Securities and Exchange Commission on behalf of The Colonial BancGroup, Inc. (the "Registrant"), during the year ending December 31, 1996; to sign any registration statement and any amendments thereto of the Registrant for the purpose of registering under the Securities Act of 1933, as amended, shares to be offered and sold by the Registrant; to file such other reports or other filings, such registration statements and amendments thereto, with all exhibits thereto, and any documents in connection therewith with the Securities and Exchange Commission; and to file such notices, reports or registration statements (and amendments thereto) with any such securities authority of any state which may be necessary to register or qualify for an exemption from registration any securities offered or sold by BancGroup in such states, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite to be done in and about the premises as fully and to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitutes, may lawfully do or cause to be done by virtue hereof. This Power of Attorney supersedes and revokes any previous power of attorney of the Registrant relating to the foregoing matters and shall terminate at the conclusion of the regular board meeting of the Registrant in January 1997. Done this 17th day of January, 1996, in the City of Montgomery, Alabama. /s/ ROBERT E. LOWDER Chairman of the Board, President and Chief - --------------------------------------------- Executive Officer Robert E. Lowder /s/ YOUNG J. BOOZER Director - --------------------------------------------- Young J. Boozer /s/ WILLIAM BRITTON Director - --------------------------------------------- William Britton /s/ JERRY J. CHESSER Director - --------------------------------------------- Jerry J. Chesser /s/ AUGUSTUS K. CLEMENTS, III Director - --------------------------------------------- Augustus K. Clements, III /s/ ROBERT CRAFT Director - --------------------------------------------- Robert Craft Director - --------------------------------------------- Patrick F. Dye
2 /s/ CLINTON HOLDBROOKS Director - --------------------------------------------- Clinton Holdbrooks /s/ D. B. JONES Director - --------------------------------------------- D. B. Jones /s/ HAROLD D. KING Director - --------------------------------------------- Harold D. King /s/ JOHN ED MATHISON Director - --------------------------------------------- John Ed Mathison /s/ MILTON MCGREGOR Director - --------------------------------------------- Milton McGregor /s/ JOHN C. H. MILLER, JR. Director - --------------------------------------------- John C. H. Miller, Jr. /s/ JOE D. MUSSAFER Director - --------------------------------------------- Joe D. Mussafer /s/ WILLIAM E. POWELL, III Director - --------------------------------------------- William E. Powell, III /s/ JACK H. RAINER Director - --------------------------------------------- Jack H. Rainer /s/ FRANCES E. ROPER Director - --------------------------------------------- Frances E. Roper /s/ ED V. WELCH Director - --------------------------------------------- Ed V. Welch
EX-27 8 FINANCIAL DATA SCHEDULE
9 1,000 YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 126,777 5,384 0 0 159,863 269,493 272,800 2,875,581 36,912 3,741,217 2,785,958 597,256 58,696 46,159 32,712 0 0 220,436 3,741,217 224,784 25,473 643 250,900 99,490 32,968 118,442 5,480 5 103,230 59,907 0 0 0 38,794 3.12 3.02 4.09 12,600 1,029 0 111,000 33,410 5,340 2,233 36,912 36,912 0 0
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