-----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, KcKoGn6s1PBQsxoDBs1/Nfunpm/0PWeSsL7biIlRVDdzPubvk9zJVtnQP3pU7khF yVqC+JSQjp+AlR1yLfhd5A== 0000950144-97-012050.txt : 19971113 0000950144-97-012050.hdr.sgml : 19971113 ACCESSION NUMBER: 0000950144-97-012050 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971113 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-Q SEC ACT: SEC FILE NUMBER: 000-07945 FILM NUMBER: 97715764 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-Q 1 COLONIAL BANCGROUP INC 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------- FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED SEPTEMBER 30, 1997 COMMISSION FILE NUMBER 1-13508 [LOGO] THE COLONIAL BANCGROUP, INC. (Exact name of registrant as specified in its charter) DELAWARE 63-0661573 - ------------------------------- ----------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) One Commerce Street Montgomery, Alabama 36104 --------------------------------------- (Address of principle executive offices) (334) 240-5000 ------------------------------- (Registrant's telephone number) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to the filing requirements for at least the past 90 days. YES [X] NO [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date. Class Outstanding at October 31, 1997 - ----------------------------- ------------------------------- Common Stock, $2.50 Par Value 42,504,863 2 THE COLONIAL BANCGROUP, INC. INDEX
PART I. FINANCIAL INFORMATION Page Number Item 1. Financial Statements (Unaudited) Consolidated Statements of Condition - September 30, 1997, December 31, 1996 and September 30, 1996................................................................................................... 1 Consolidated Statements of Income - Three months ended September 30, 1997 and September 30, 1996 and Nine months ended September 30, 1997 and September 30, 1996.................................. 2 Consolidated Statements of Cash Flows - Nine months ended September 30, 1997 and September 30, 1996............................................................................................... 3 Notes to Consolidated Financial Statements - September 30, 1997..................................................... 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................ 7 PART II. OTHER INFORMATION Item 1. Legal Proceedings.................................................................................................... 15 Item 6. Exhibits and Reports on Form 8-K..................................................................................... 15 SIGNATURES................................................................................................................... 16
3 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CONDITION (Unaudited) (Dollars in thousands, except per share amounts)
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, 1997 1996* 1996* ------------- ------------ ------------- ASSETS: Cash and due from banks $ 221,463 $ 239,781 $ 177,301 Interest-bearing deposits in banks 14,013 5,143 5,117 Federal funds sold 2,470 15,990 7,780 Securities available for sale 524,740 462,313 460,250 Investment securities 311,796 300,121 322,124 Mortgage loans held for sale 182,878 157,966 161,864 Loan, net of unearned income 4,970,765 4,215,802 4,089,404 Less: Allowance for possible loan losses (61,913) (53,443) (50,833) ----------- ----------- ----------- Loans, net 4,908,852 4,162,359 4,038,571 Premises and equipment 123,776 93,009 91,559 Excess of cost over tangible and identified intangible assets acquired, net 68,849 30,431 31,048 Mortgage servicing rights 134,118 98,856 95,076 Other real estate owned 12,612 10,229 11,170 Accrued interest and other assets 100,360 96,339 91,757 ----------- ----------- ----------- TOTAL ASSETS $ 6,605,927 $ 5,672,537 $ 5,493,617 =========== =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY: Deposits $ 5,136,556 $ 4,299,821 $ 4,237,610 FHLB short-term borrowings 610,000 715,000 580,000 Other short-term borrowings 185,333 129,129 164,695 Subordinated debt 6,208 8,612 9,193 Trust preferred securities 70,000 -- -- Other long-term debt 24,891 30,480 24,597 Other liabilities 100,586 86,787 84,700 ----------- ----------- ----------- Total liabilities 6,133,574 5,269,829 5,100,795 ----------- ----------- ----------- SHAREHOLDERS' EQUITY Common Stock, $2.50 par value; 100,000,000 shares authorized, 41,964,197; 39,145,685 and 38,932,764 shares issued and outstanding at September 30, 1997, December 31, 1996 and September 30,1996, respectively 104,910 97,864 97,332 Additional paid in capital 187,260 168,064 165,829 Retained earnings 180,778 137,956 136,686 Unearned compensation (1,796) (1,603) (1,358) Unrealized gains (losses) on securities available for sale, net of taxes 1,201 427 (5,667) ----------- ----------- ----------- Total shareholders' equity 472,353 402,708 392,822 ----------- ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 6,605,927 $ 5,672,537 $ 5,493,617 =========== =========== ===========
* See Note A See Notes to the Unaudited Condensed Consolidated Financial Statements 1 4 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (Dollars in thousands, except per share amounts)
NINE MONTHS ENDED THREE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, -------------------- --------------------- 1997 1996* 1997 1996* -------- -------- -------- --------- INTEREST INCOME: Interest and fees on loans $321,289 $267,168 $112,160 $ 93,566 Interest on investments 39,944 31,519 13,607 10,859 Other interest income 1,597 2,256 448 419 -------- -------- -------- --------- Total interest income 362,830 300,943 126,215 104,844 -------- -------- -------- --------- INTEREST EXPENSE: Interest on deposits 146,277 120,775 50,359 41,954 Interest on short-term borrowings 30,713 28,749 10,940 10,114 Interest on long-term debt 5,507 2,023 1,984 696 -------- -------- -------- --------- Total interest expense 182,497 151,547 63,283 52,764 -------- -------- -------- --------- NET INTEREST INCOME 180,333 149,396 62,932 52,080 Provision for possible loan losses 8,833 6,292 2,578 2,669 -------- -------- -------- --------- Net Interest Income After Provision for Possible Loan Losses 171,500 143,104 60,354 49,411 -------- -------- -------- --------- NONINTEREST INCOME: Mortgage servicing and origination fees 25,242 21,229 8,375 6,365 Service charges on deposit accounts 18,655 16,196 5,901 4,462 Other charges, fees and commissions 5,170 4,795 2,347 2,504 Securities gains (losses), net 63 99 80 (22) Other income 12,493 11,581 4,822 4,668 -------- -------- -------- --------- Total noninterest income 61,623 53,900 21,525 17,977 -------- -------- -------- --------- NONINTEREST EXPENSE: Salaries and employee benefits 59,343 52,555 21,398 17,474 Occupancy expense, net 14,489 11,557 4,742 3,491 Furniture and equipment expenses 11,975 9,873 4,397 3,320 Amortization of mortgage servicing rights 12,161 8,954 4,449 3,238 Amortization of intangible assets 2,129 1,558 849 537 SAIF assessment -- 4,465 -- 4,465 Acquisition expense 3,333 1,610 579 628 Other expense 40,179 38,806 13,229 13,240 -------- -------- -------- --------- Total noninterest expense 143,609 129,378 49,643 46,393 -------- -------- -------- --------- Income before taxes 89,514 67,626 32,236 20,995 Applicable income taxes 33,460 23,794 12,187 7,360 -------- -------- -------- --------- Net income $ 56,054 $ 43,832 $ 20,049 $ 13,635 ======== ======== ======== ========= EARNINGS PER SHARE: Primary $ 1.32 $ 1.11 $ 0.47 $ 0.34 Fully diluted 1.31 1.10 0.47 0.34
* See Note A See Notes to the Unaudited Condensed Consolidated Financial Statements. 2 5 THE COLONIAL BANCGROUP INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (Unaudited) (Dollars in thousands, except per share amounts)
NINE MONTHS ENDED SEPTEMBER 30, ----------------------- 1997 1996* --------- --------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $ 36,857 $ (5,309) --------- --------- Cash flows from investing activities: Proceeds from maturities of securities available for sale 77,406 76,170 Proceeds from sales/paydowns of securities available for sale 25,291 28,732 Purchase of securities available for sale (52,821) (100,090) Proceeds from maturities of investment securities 129,706 129,442 Purchase of investment securities (126,636) (146,027) Net decrease in short-term securities -- 9,400 Net increase in loans (318,517) (488,590) Cash received in bank acquisitions/dispositions 20,425 11,471 Capital expenditures (28,297) (18,003) Proceeds from sale of other real estate owned 2,784 5,944 Other, net 3,009 30 --------- --------- NET CASH USED IN INVESTING ACTIVITIES $(267,650) $(491,521) --------- --------- Cash flows from financing activities: Net increase in demand, savings, and time deposits 230,919 319,113 Net (decrease) increase in federal funds purchased, repurchase agreements and other short-term borrowings (56,579) 120,030 Proceeds from issuance of long-term debt 80,000 5,017 Repayment of long-term debt (17,614) (3,664) Proceeds from issuance of common stock 5,639 2,476 Acquisition of treasury stock for issuance in a purchase business combination (15,887) -- Dividends paid ($.45 per share in 1997 and $.405 per share in 1996) (18,653) (13,451) --------- --------- NET CASH PROVIDED BY FINANCING ACTIVITIES $ 207,825 $ 429,521 --------- --------- NET DECEASE IN CASH AND CASH EQUIVALENTS (22,968) (67,309) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 260,914 257,507 --------- --------- CASH AND CASH EQUIVALENTS AT SEPTEMBER 30 $ 237,946 $ 190,198 ========= ========= Disclosure of cash flow information Cash paid during nine months for: Interest $ 171,815 $ 150,129 Income taxes 34,483 24,949 Non-cash investing activities: Transfer of loans to other real estate 6,410 3,933 Origination of loans for the sale of other real estate -- 205 Securitization of mortgage loans -- 87,641 Non-cash financing activities: Conversion of subordinated debentures 2,395 9,228 Assets acquired in business combinations 521,251 78,505 Liabilities assumed in business combinations (464,945) 75,905
* See Note A See Notes to the Unaudited Condensed Consolidated Financial Statements 3 6 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE A - ACCOUNTING POLICIES/RESTATEMENT The Colonial BancGroup, Inc. ("BancGroup") and its subsidiaries have not changed their accounting and reporting policies from those stated in the 1996 annual report. These unaudited interim financial statements should be read in conjunction with the audited financial statements and footnotes included in BancGroup's 1996 annual report and also the restated audited financial statements and footnotes included in BancGroup's 8-K filing dated June 24, 1997. The September 30, 1996 financial statements have been restated to give retroactive effect to the pooling-of-interests business combinations with Jefferson Bancorp, Inc., D/W Bankshares, Inc. and Fort Brooke Bancorporation. In the opinion of BancGroup, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the financial position as of September 30, 1997 and 1996 and the results of operations and cash flows for the interim periods ended September 30, 1997 and 1996. All 1997 interim amounts are subject to year-end audit, and the results of operations for the interim period herein are not necessarily indicative of the results of operations to be expected for the year. NOTE B - BUSINESS COMBINATIONS On January 3, 1997, Jefferson Bancorp, Inc. ("Jefferson") was merged into BancGroup. Jefferson's subsidiary, Jefferson Bank of Florida was merged into BancGroup's existing subsidiary bank, Colonial Bank. At December 31, 1996 Jefferson had approximately $473 million in assets and deposits and other liabilities of approximately $441 million. Jefferson operated fifteen offices in Miami and South Florida. This business combination was accounted for as a pooling of interests and the financial statements have been restated accordingly. On January 3, 1997, Tomoka Bancorp, Inc. ("Tomoka") was merged into BancGroup. Tomoka's subsidiary, Tomoka State Bank, was merged into BancGroup's existing subsidiary bank, Colonial Bank. At December 31, 1996, Tomoka had approximately $77 million in assets and deposits and other liabilities of approximately $70 million. Tomoka operated four offices in Ormond Beach, New Smyrna Beach, Pierson and Port Orange, Florida. This business combination was accounted for as a pooling of interests, however, due to immateriality, the prior year financial statements were not restated. On January 9, 1997, First Family Financial Corporation ("First Family") was merged into BancGroup. First Family's subsidiary, First Family Bank was merged into BancGroup's existing subsidiary bank, Colonial Bank. At December 31, 1996, First Family had approximately $167 million in assets and deposits and other liabilities of approximately $158 million. First Family operated six offices in part of the Orlando metropolitan area. This business combination was accounted for as a purchase and the results of operations are included in the accompanying financial statements only from the date of consummation forward. On January 31, 1997, D/W Bankshares, Inc. ("D/W") was merged into BancGroup. D/W's subsidiary, Dalton/Whitfield Bank & Trust, was merged into BancGroup's existing subsidiary bank, Colonial Bank. At December 31, 1996, D/W had approximately $139 million in assets and deposits and other liabilities of approximately $129 million. D/W operated three offices in the Dalton, Georgia area. This business combination was accounted for as a pooling of interests and the financial statements have been restated accordingly. On March 5, 1997, Shamrock Holding, Inc. ("Shamrock") was merged into BancGroup. Shamrock's subsidiary, Union Bank, was merged into BancGroup's existing subsidiary, Colonial Bank. As of December 31, 1996, Union Bank had approximately $54 million in assets and deposits and other liabilities of approximately $47 million. This business combination was accounted for as a purchase and the results of operations are included in the accompanying financial statements only from the date of consummation forward. On April 22, 1997, Fort Brooke Bancorporation ("Fort Brooke") was merged into BancGroup. Fort Brooke's subsidiary, Fort Brooke Bank, was merged into BancGroup's existing subsidiary bank, Colonial Bank. At December 31, 1996, Fort Brooke had approximately $209 million in assets and deposits and other liabilities of approximately $192 million. Fort Brooke operated eight offices in the Tampa Florida area. This business combination was accounted for as a pooling of interests and the financial statements have been restated accordingly. On July 1, 1997, Great Southern Bancorp ("Great Southern") was merged into BancGroup. Great Southern's subsidiary, Great Southern Bank, was merged into BancGroup's existing subsidiary bank, Colonial Bank. At June 30, 1997, Great Southern had approximately $121 million in assets and deposits and other liabilities of approximately $111 million. Great Southern operated five offices in Palm Beach County, Florida. This business combination was accounted for as a pooling of interests, however due to immateriality, the prior year financial statements were not restated. On July 1, 1997, First Commerce Banks of Florida, Inc. ("First Commerce") was merged into BancGroup. First Commerce's subsidiary, First Commerce Bank of Polk County, was merged into BancGroup's existing subsidiary bank, Colonial Bank. At June 30, 1997, First Commerce had approximately $99 million in assets and deposits and 4 7 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED other liabilities of approximately $89 million. First Commerce operated 5 offices in the Polk County, Florida area. This business combination was accounted for as a purchase and the results of operations are included in the accompanying financial statements only from the date of consummation forward. On September 15, 1997, Dadeland BancShares, Inc. ("Dadeland"), was merged into BancGroup. Dadeland's subsidiary, Dadeland Bank, was merged into BancGroup's existing subsidiary bank, Colonial Bank. At June 30, 1997, Dadeland had approximately $134 million in assets and deposits and other liabilities of approximately $118 million. Dadeland operated 4 offices in Miami, Florida. This business combination was accounted for as a purchase and the results of operations are included in the accompanying financial statements only from the date of consummation forward. The following table presents net interest income, noninterest income, and net income as reported by BancGroup, D/W and Fort Brooke on a combined basis for the nine months ended September 30, 1996. In 1997, prior to consummation of the business combination with BancGroup, D/W recorded $445,000 of net interest income, $82,000 of noninterest income and $146,000 of net income and Fort Brooke recorded $3,153,000 of net interest income, $535,000 of noninterest income and $900,000 of net income.
Net Interest Nointerest Net (Dollars in thousands) Income Income Income -------- ------- ------- BancGroup $138,487 $51,999 $41,418 D/W 4,236 770 1,213 Fort Brooke 6,673 1,131 1,201 -------- ------- ------- Combined $149,396 $53,900 $43,832 ======== ======= =======
On October 1,1997 First Independence Bank of Florida ("First Independence") was merged into BancGroup's existing subsidiary bank, Colonial Bank. At June 30, 1997, First Independence had approximately $66 million in assets and deposits and other liabilities of approximately $61 million. First Independence operated three office located in Fort Myers, Fort Myers Beach and Sanibel Island, Florida. This business combination was accounted for as a pooling of interests, however, due to immateriality, the prior year financial statements will not be restated. On August 28, 1997, BancGroup entered into a definitive agreement to acquire ASB Bancshares, Inc. ("ASB"). ASB is a Delaware corporation and is a holding company for Ashville Savings Bank located in Ashville, Alabama. ASB will merge with BancGroup and following such merger Ashville Savings Bank will merge with BancGroup's existing subsidiary bank, Colonial Bank, BancGroup will issue a maximum of 632,362 shares of its Common Stock depending upon the market value at the time of such merger and issue an aggregate amount of $7,724,813 of subordinated debentures to the stockholders of ASB. This transaction is subject to, among other things, approval by the stockholders of ASB and approval by appropriate regulatory authorities and will be accounted for as a purchase. At June 30, 1997, ASB had assets of $142.2 million, deposits of $129.3 million and stockholders' equity of $11.6 million On September 4, 1997, BancGroup entered into a definitive agreement to acquire South Florida Banking Corp. ("South Florida"). South Florida is a Florida corporation and is a holding company for First National Bank of Florida at Bonita Springs located in Bonita Springs, Florida. South Florida will merge with BancGroup and following such merger First National Bank of Florida at Bonita Springs will merge with BancGroup's existing subsidiary bank, Colonial Bank. BancGroup will issue a maximum of 1,929,744 shares of its Common Stock depending upon whether certain conditions are met prior to the effective date of the merger. This transaction is subject to, among other things, approval by the stockholders of South Florida and approval by appropriate regulatory authorities and is expected to be accounted for as a pooling of interests. At June 30, 1997 South Florida had assets of $249.6 million, deposits of $210.4 million and stockholders' equity of $16.2 million On September 8, 1997, BancGroup entered into a definitive agreement with United American Holding Company ("United American"). United American is a Florida corporation and is a holding company for United American Bank of Central Florida located in Orlando, Florida. United American will merge with BancGroup and following such merger United American Bank of Central Florida will merge with BancGroup's existing subsidiary bank, Colonial Bank. BancGroup will issue a maximum of 2,729,218 shares of its Common Stock depending upon the market value at the time of such merger to the stockholders of United American. This transaction is subject to, among other things, approval by the stockholders of United American and approval by appropriate regulatory authorities and is expected to be accounted for as a pooling of interests. At June 30, 1997 United American had assets of $240.8 million, deposits of $209.9 million and stockholders' equity of $19.3 million. On September 9, 1997, BancGroup entered into a definitive agreement with First Central Bank ("First Central"). First Central is a Florida bank located in St. Petersburg, Florida. First Central will merge with BancGroup's existing subsidiary bank, Colonial Bank. BancGroup will issue a maximum of 841,796 shares of its Common Stock depending upon 5 8 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES Notes Unaudited Condensed Consolidated Financial Statements--Continued the market value at the time of such merger to the stockholders of First Central. This transaction is subject to, among other things, approval by the stockholders of First Central and approval by appropriate regulatory authorities and is expected to be accounted for as a pooling of interests. At June 30, 1997 First Central had assets of $54.7 million, deposits of $44.5 million and stockholders' equity of $9.7 million. NOTE C - COMMITMENTS AND CONTINGENCIES BancGroup's subsidiary bank makes loan commitments and incurs contingent liabilities in the normal course of business which are not reflected in the consolidated statements of condition. NOTE D - RECENT ACCOUNTING PRONOUNCEMENTS In September 1996, the Financial Accounting Standards Board issued SFAS No. 125, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, which requires an entity to recognize the financial and servicing assets it controls and the liabilities it has incurred, derecognize the financial assets when control has been surrendered, and derecognize liabilities when extinguished. This statement distinquishes between transfers that are sales and chose that are secured borrowings. SFAS No. 125 also provides implementation guidance for assessing isolation of transferred assets and for accounting for transfers of partial interests, servicing of financial assets, securitizations, transfers of sales-type and direct financing lease receivables, securities lending transactions, repurchase agreements, loan syndications and participations, risk participations in banker's acceptances, factoring arrangements, transfers of receivables with recourse, and extinguishments of liabilities. BancGroup adopted SFAS No. 125 as of January 1, 1997. The adoption of SFAS No. 125 did not have a material impact on BancGroup's financial statements. This statement is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring as of December 31, 1996 and is to be applied prospectively. Earlier or retroactive application is not permitted. However, in December 1996, the Financial Accounting Standards Board issued SFAS No. 127, "Deferral of the Effective Date of Certain Provisions of FASB Statement No. 125." This statement defers the effective date of certain provisions for one year (December 31, 1997). The deferred provisions relate to repurchase agreements, dollar-roll transactions, securities lending, and similar transactions. The effective date for all other transfers and servicing of financial assets is unchanged. In February 1997, the Financial Accounting Standards Board issued SFAS No. 128, Earnings Per Share, which establishes standards for computing and presenting earnings per share (EPS) and applies to entities with publicly held common stock or potential common stock. This statement replaces the presentation of primary EPS with a presentation of basic EPS and requires dual presentation of basic and diluted EPS on the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. This statement is effective for financial statements issued for periods ending after December 15, 1997, including interim periods; earlier application is not permitted. Under SFAS No. 128, BancGroup's basic EPS would be $1.35 and $1.13 for the nine months ended September 30, 1997 and 1996, respectively and $.48 and $.35 for the quarter ended September 30, 1997 and 1996, respectively. Fully-diluted EPS would not change from amounts currently reported for the nine months and quarter ended September 30, 1997 and 1996, respectively. In September 1997, the Financial Accounting Standards Board issued SFAS No. 130, Reporting of Comprehensive Income, which establishes standards for reporting and display of comprehensive income and its components (revenues expenses, gains, and losses) in a full set of financial statements. This statement also requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. This statement is effective for fiscal years beginning after December 15, 1997. Although earlier application is permitted, BancGroup has chosen not to adopt early. Reclassification of financial statements for earlier periods provided for comparative purposes is required. In September 1997, the Financial Accounting Standards Board also issued SFAS No.131, Disclosures about Segments of an Enterprise and Related Information, which establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. This statement also establishes standards for related disclosures about produces and services, geographic areas, and major customers. This statement requires the reporting of financial and descriptive information about an enterprise's reportable operating segments. This statement is effective for financial statements for periods beginning after December 15, 1997. In the initial year of application, comparative information for earlier years is to be restated. 6 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCIAL CONDITION: Ending balances of total assets, securities, mortgage loans held for sale, net loans, deposits and long-term debt changed for the nine months and twelve months ended September 30, 1997, respectively, as follows (in thousands):
DECEMBER 31, 1996 SEPTEMBER 30, 1996 TO SEPTEMBER 30, 1997 TO SEPTEMBER 30, 1997 INCREASE (DECREASE) INCREASE (DECREASE) --------------------- --------------------- AMOUNT % AMOUNT % ------ -------- ------- -------- Total Assets $933,390 16.5% $1,112,310 20.2% Securities 74,102 9.7 54,162 6.9 Mortgage loans held for sale 24,912 15.8 21,014 13.0 Loans, net of unearned income 754,963 17.9 881,361 21.6 Deposits 836,735 19.5 898,946 21.2 Long term debt 62,007 158.6 67,309 199.2
SECURITIES: Investment securities and securities available for sale have increased approximately $74 million from December 31, 1996 to September 30, 1997. Approximately $128 million of the increase resulted from business combinations. The off-setting decrease resulted from normal funding operations and maturities in excess of purchases of approximately $47 million. LOANS AND MORTGAGE LOANS HELD FOR SALE: Loans have increased 21.6% since September 30, 1996. This increase is a result of a 8.4% internal loan growth from September 30, 1996 to September 30, 1997, with the remainder from acquisition activity. The increase in loans, net of unearned income, since December 31, 1996 of approximately $755 million is partially from internal loan growth of approximately $300 million (an annualized rate of 8.4%). The remaining increase of approximately $455 million resulted from acquisition activity. Loans increased at a 16% internal growth rate for the year ended December 31, 1996. Mortgage loans held for sale are funded on a short-term basis (less than 90 days) while they are being packaged for sale in the secondary market by Colonial Mortgage Company, a wholly owned subsidiary of Colonial Bank. Loans originated amounted to approximately $1,036.1 million and $1,028.9 million and sales thereof amounted to approximately $1,011.2 million and $977.6 million during the nine months ended September 30, 1997 and 1996, respectively. The stabilization in originations was primarily due to the slightly higher interest rates which resulted in a decrease in refinancings and new originations. Gross loans by category and summary of loan loss experience are shown in the following schedules.
GROSS LOANS BY CATEGORY SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, (In thousands) 1997 1996 1996 ----------- ----------- ----------- Commercial, financial and agricultural $ 594,030 $ 589,418 $ 586,737 Real estate-commercial 1,248,438 1,032,970 995,027 Real estate-construction 600,417 460,537 400,812 Real estate-residential 2,153,869 1,801,703 1,784,972 Installment and consumer 303,413 278,600 265,720 Other 71,503 55,883 52,837 ----------- ----------- ----------- Total loans $ 4,971,670 $ 4,219,111 $ 4,086,105 =========== =========== =========== PERCENT OF LOANS IN EACH CATEGORY TO TOTAL LOANS: Commercial, financial and agricultural 12.0% 14.0% 14.4% Real estate-commercial 25.1 24.5 24.3 Real estate-construction 12.1 10.9 9.8 Real estate-residential 43.3 42.7 43.7 Installment and consumer 6.1 6.6 6.5 Other 1.4 1.3 1.3 ----------- ----------- ----------- 100.0% 100.0% 100.0% =========== =========== ===========
7 10 Loans collateralized by commercial real estate increased approximately $253 million since September 30,1996 and $215 million since December 31, 1996. Loans secured by residential real estate increased $369 and $352 million since September 30, 1996 and December 31, 1996, respectively. These loan categories continue to be a significant source of loan growth and are concentrated in various areas in Alabama, the metropolitan Atlanta market in Georgia as well as Central and South Florida. SUMMARY OF LOAN LOSS EXPERIENCE
NINE MONTHS YEAR NINE MONTHS ENDED ENDED ENDED SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, (In thousands) 1997 1996 1996 ------------- ----------- ----------- Allowance for possible loan losses - January 1 $53,443 $46,917 $46,917 Charge-offs: Commercial, financial, and agricultural 2,717 3,196 2,109 Real estate-commercial 763 2,074 1,241 Real estate-construction 147 1,774 754 Real estate-residential 1,141 878 484 Installment and consumer 3,991 3,334 2,098 Other 593 594 163 ------- ------- ------- Total charge-offs 9,352 11,850 6,849 ------- ------- ------- Recoveries: Commercial, financial, and agricultural 521 1,418 1,242 Real estate-commercial 720 1,450 886 Real estate-construction 67 1 1 Real estate-residential 140 693 200 Installment and consumer 1,248 1,566 1,472 Other 110 85 54 ------- ------- ------- Total recoveries 2,806 5,213 3,855 ------- ------- ------- Net charge-offs 6,546 6,637 2,994 Addition to allowance charged to operating expense 8,833 12,545 6,292 Allowance added from bank mergers 6,183 618 618 ------- ------- ------- Allowance for possible loan losses-end of period $61,913 $53,443 $50,833 ======= ======= =======
Asset quality as measured by nonperforming assets remains good at 0.82% of net loans and other real estate. Nonperforming assets have increased $6.7 million from December 31,1996. The increase in nonperforming assets resulted from a $4.9 million increase in nonaccrual loans, a $.6 million decrease in restructured loans and a $2.4 million increase in other real estate. The increase in nonaccrual loans is primarily from one large commercial real estate loan in North Alabama together with the business combinations consummated since the end of 1996. The increase in other real estate is due to the write-off of a commercial loan in North Alabama. Management continuously monitors and evaluates recoverability of problem assets and adjusts loan loss reserves accordingly. The loan loss reserve is 1.25% of loans at September 30, 1997 as compared to 1.24% at September 30, 1996. The increase in allowance since year end has been due to provisions in excess of net charge-offs totaling $2.3 million and reserves of $6.2 million from the purchase of First Family, Tomoka, Shamrock, Great Southern, First Commerce and Dadeland. The provisions in excess of net charge-offs have been made primarily as a result of loan growth. 8 11 NONPERPORMING ASSETS ARE SUMMARIZED BELOW
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, (In thousands) 1997 1996 1996 ------- ------- ------- Nonaccrual loans $27,230 $22,334 $21,802 Restructured loans 1,061 1,683 2,367 ------- ------- ------- Total nonperforming loans* 28,291 24,017 24,169 Other real estate owned 12,612 10,229 11,170 ------- ------- ------- Total nonperforming assets* $40,903 $34,246 $35,339 ======= ======= ======= Aggregate loans contractually past due 90 days for which interest is being accrued $ 6,048 $ 7,682 $ 5,665 Net charge-offs (recoveries): Year to date $ 6,546 $ 6,637 $ 2,994 Quarter to date $ 2,526 $ 3,643 $ 1,632 RATIOS Period end: Total nonperforming assets as a percent of net loans and other real estate 0.82% 0.81% 0.86% Allowance as a percent of net loans 1.25% 1.27% 1.24% Allowance as a percent of nonperforming assets 151% 156% 144% Allowance as a percenc of nonperforming loans 219% 223% 210% Net charge-offs (recoveries) as a percent of average net loans (annualized basis): Year to date 0.19% 0.17% 0.10% Quarter to date 0.21% 0.39% 0.16%
* Total does not include loans contractually past due 90 days or more which are still accruing interest. Management, through its loan officers, internal loan review staff, and external examinations by regulatory agencies has identified approximately $162.6 million of potential problem loans not included above. The status of these loans is reviewed at least quarterly by loan officers and the centralized loan review function and annually by regulatory agencies. In connection with such reviews, collateral values are updated where considered necessary. If collateral values are judged insufficient and other sources of repayment inadequate, the loans are reduced to estimated recoverable amounts through increases in reserves allocated to the loans or charge-offs. As of September 30, 1997 substantially all of these loans are current with their existing repayment terms. Given the reserves and the ability of the borrowers to comply with the existing repayment terms, management believes any exposure from these potential problem loans has been adequately addressed at the present rime. The above nonperforming loans and potential problem loans represent all material credits for which management has doubts as to the ability of the borrowers to comply with the loan repayment terms. Of these loans, management believes it is probable that loans totaling $20.4 million will not be collected as scheduled and therefore are considered impaired. Management also expects that the resolution of these problem credits as well as other performing loans will not materially impact future operating results, liquidity or capital resources. Allocations of the allowance for possible loan losses are made on an individual loan basis for all identified potential problem loans with a percentage allocation for the remaining portfolio. The allocations of the total allowance represent an approximation of the reserves for each category of loans based on management's evaluation of risk within each loan type. ALLOCATION OF THE ALLOWANCE FOR POSSIBLE LOAN LOSSES
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, (In thousands) 1997 1996 1996 ---- ---- ---- Commericial, financial and agricultural $11,888 $11,318 $10,694 Real estate-commercial 21,040 16,866 18,126 Real estate-construction 12,138 9,910 7,290 Real estate-residential 10,769 9,009 8,925 Installment and consumer 4,585 4,251 4,839 Other 1,493 2,089 959 ------- ------- ------- TOTAL $61,913 $53,443 $50,833 ======= ======= =======
9 12 LIQUIDITY: The maintenance of an adequate liquidly position is a principal component of BancGroup's asset/liabiliy management strategy. BancGroup's governing policy provides for daily and longer term monitoring of both sources and uses of funds to properly maintain the cash position. To assist in funding a projected 8% annualized growth in loans, BancGroup has credit facilities at the Federal Home Loan Bank (FHLB). FHLB of Atlanta has established credit availability in an amount up to $1.7 billion with only $621 million outstanding at September 30, 1997. This source of credit reduces BancGroup's dependency on deposits as a source of liquidity resulting in a loan to deposit ratio of 97% at September 30, 1997 and 1996 and 98% at December 31, 1996. BancGroup has a brokered Certificate of Deposit (CD) program in conjunction with Merrill Lynch, Dean Witter and Oppenheimer Capital to offer CD's in increments of $l,000 to $99,000 to out of market customers at competitive rates ranging from 5.20% to 5.65% maturing in 6 to 24 month periods. At September 30,1997, $128 million is outstanding under this program. Rate sensitivity is also constantly monitored. CAPITAL RESOURCES: Management continuously monitors the capital adequacy and potential for future growth. The primary measurement for these evaluations for a bank holding company is its tier one leverage ratio. Tier one capital for BancGroup at September 30, 1997 consists of $472 million of equity and $70 million in trust preferred securities less $70 million of intangibles providing a 7.28% leverage ratio at September 30,1997. The ratio of shareholders' equity to total assets at September 30, 1997 and 1996 was 7.15%. Management believes that capital levels are sufficient to support future internally generated growth and fund the quarterly dividend rates which are currently $0.15 per share. BancGroup also has access to equity capital markets through both public and private issuances. Management considers these sources and related return in addition to internally generated capital in evaluating future expansion, merger or acquisition opportunities. On January 29, 1997, BancGroup issued, through a special purpose trust, $70 million of Trust Preferred Securities. The securities bear interest at 8.92% and are subject to redemption by BancGroup, in whole or in part, at any time after January 29, 2007 until maturity in January 2027. Circumstances are remote that redemption will occur prior to maturity. The securities are subordinated to substantially all of BancGroup's indebtedness. YEAR 2000 COMPLIANCE: Most computer software programs and processing systems, including those used by BancGroup and its subsidiaries in their operations, have not been designed to accommodate entries beyond the year 1999 in date fields. Failure to address the anticipated consequences of this design deficiency could have material adverse effects on the business and operations of any business, including BancGroup, that relies on computers and associated technologies. In response to the challenges of addressing such consequences in the banking industry, bank regulatory agencies, including the Federal Reserve, BancGroup's primary regulator, have established a Year 2000 Supervision Program and published guidelines for implenting procedures to bring the computer software programs and processing systems into year 2000 compliance. In compliance with the guidelines of the Federal Reserve, BancGroup has assigned staff on a full time basis to assess the impact of year 2000 on all areas of BancGroup, Colonial Bank and the bank's mortgage company subsidiary. The staff is responsible for developing and implementing a strategy to ensure that all critical systems are year 2000 compliant and testing has begun by fourth quarter 1998. All critical Bank software and processing systems are currently being upgraded to year 2000 compliant status. The anticipated costs of upgrading those systems for Colonial Bank is presently estimated to be approximately $800,000. The mortgage company servicing system is scheduled to be rewritten into year 2000 compliant format by November 1998. The cost of the mortgage company servicing system rewrite, in addition to other systems upgrades is estimated to be $2.7 million spread over the next two to three years. BancGroup anticipates that these modifications will bring added functionality and capacity to BancGroup. Micro computer based systems are currently being assessed and the cost of bringing those systems into year 2000 compliance is not currently ascertainable. The costs to bring other miscellaneous systems into year 2000 compliance are not expected to be material. COMPARISON OF THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996: SUMMARY: BancGroup's net income for the quarter ended September 30, 1997, increased 47% to $20,049,000 compared to $13,635,000 in the prior year. Fully diluted earnings per share for the quarter increased 38% to $.47 per share compared to $.34 per share for the same quarter of the previous year. BancGroup's net income for the nine months ended September 30, 1997 was $56,054.000. This was a 28% increase over the prior year net income of $43,832,000. Fully diluted earnings per share for the nine months ended September 30, 1997, were $1.31 compared to $1.10 for the same period in 1996, a 19% increase. The increase in net income is primarily attributable to increases in interest earning assets and noninterest income partially off-set by increases in loan loss provision and noninterest expenses. In addition, the September 30, 1996 financials reflect a one-time SAIF special assessment incurred in the third quarter of 1996. 10 13 AVERAGE VOLUME AND RATES (Unaudited) (Dollars in thousands)
THREE MONTHS ENDED SEPTEMBER 30, -------------------------------- 1997 1996* --------------------------------- -------------------------------- AVERAGE AVERAGE VOLUME INTEREST RATE VOLUME INTEREST RATE ASSETS: Loans, net $4,823,323 $109,352 8.99% $4,076,610 $ 91,057 8.86% Mortgage loans held for sale 157,764 3,068 7.72% 136,154 2,799 8.16% Investment securities and securities available for sale and other interest- earning assets 878,534 14,392 6.50% 750,071 11,630 6.15% ---------- -------- ---------- ---------- Total interest-earning assets(l) 5,859,621 $126,812 8.59% 4,962,835 $ 105,486 8.43% -------- ---------- Nonearning assets 558,251 455,859 ---------- ---------- Total assets $6,417,872 $5,418,694 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY: Incerest-bearing deposits $4,116,170 $ 50,357 4.85% $3,436,668 $ 41,938 4.84% Short-term borrowings 789,389 10,938 5.50% 752,365 10,113 5.33% Long-term debt 95,562 1,985 8.24% 40,147 697 6.89% ---------- -------- ---------- ---------- Tocal interest-bearing liabilities 5,001,121 $ 63,280 5.07% 4,229,180 $ 52,748 4.95% -------- ---------- Nonincerest-bearing demand deposits 862,944 711,029 Other liabilities 89,173 87,785 ---------- ---------- Total liabilities 5,953,238 5,027,994 Shareholders' equity 464,634 390,700 ---------- ---------- Total liabilities and shareholders' equity $6,417,872 $5,418,694 ========== ========== RATE DIFFERENTIAL 3.51% 3.48% NET YIELD ON INTEREST-EARNING ASSETS $ 63,532 4.30% $ 52,738 4.22% ======== ==========
* Restated financial results above reflect the business combinations with Jefferson Bancorp, Inc. D/W Bankshares, Inc. and Fort Brooke Bancorporation. These mergers were accounted for as poolings of interests and the financial results have been restated accordingly. (1) Interest earned and average rates on obligatons of states and political subdivisons are reflected on a tax equivalent basis. Tax equivalent interest earned is: actual interest earned times 145%. The taxable equivalent adjustment has given effect to the disallowance of interest expense deductions, for federal income tax purposes, related to certain tax-free assets. Dividends earned and average rates for preferred stocks are reflected on a tax equivalent basis. Tax equivalent dividends are: actual dividends times 137.7%. 11 14 Average VOLUME AND RATES (Unaudited) (Dollars in thousands)
NINE MONTHS ENDED SEPTEMBER 30, -------------------------------- 1997** 1996* ------------------------------------ -------------------------------- AVERAGE AVERAGE VOLUME INTEREST RATE VOLUME INTEREST RATE ---------- -------- ---- ---------- ---------- ---- ASSETS: Loans, net $4,658,757 $313,904 9.00% $3,858,774 $ 259,863 9.00% Mortgage loans held for sale 137,939 8,142 7.87% 140,534 8,176 7.76% Investment securities and securities available for sale and other interest- earning assets 876,880 42,573 6.49% 758,296 34,825 6.14% ---------- -------- ---------- ---------- Total interest-earning assets(l) 5,673,576 $364,619 8.58% 4,757,604 $ 302,864 8.50% -------- ---------- Nonearning assets 514,581 450,987 ---------- ---------- Total assets $6,188,157 $5,208,591 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY: Interest-bearing deposits $4,034,268 $146,274 4.85% $3,315,404 $ 120,775 4.87% Short-term borrowings 744,524 30,712 5.52% 708,532 28,749 5.42% Long-term debt 88,583 5,507 8.31% 39,659 2,023 6.81% ---------- -------- ---------- ---------- Total interest-bearing liabilities 4,867,375 $182,493 5.01% 4,063,595 $ 151,547 4.98% -------- ---------- Noninterest-bearing demand deposits 791,220 682,395 Other liabilities 84,411 85,098 ---------- ---------- Total liabilities 5,743,006 4,831,088 Shareholders' equity 445,151 377,503 ---------- ---------- Total liabilities and shareholders' equity $6,188,157 $5,208,591 ========== ========== RATE DIFFERENTIAL 3.57% 3.52% NET YIELD ON INTEREST-EARNING ASSETS $182,126 4.28% $ 151,317 4.25% ======== ========== ====
* Restated financial results above reflect the business combinations with Jefferson Bancorp, Inc., D/W Bankshares, Inc. and Fort Brooke Bancorporation. These mergers were accounted for as poolings of interests and the financial results have been restated accordingly ** Restated financial results above reflect the business combination with Great Southern Bancorp on July 1, 1997. This merger was accounted for as a pooling of interests and the 1997 financial results have been restated accordingly (1) Interest earned and average rates on obligations of states and political subdivisions are reflected on a tax equivalent basis. Tax equivalent interest earned is: actual interest earned times 145%. The taxable equivalent adjustment has given effect to the disallowance of interest expense deductions, for federal income tax purposes, related to certain tax-free assets. Dividends earned and average rates for preferred stocks are reflected on a tax equivalent basis. Tax equivalent dividends are: actual dividends times 137.7% 12 15 ANALYSIS OF INTEREST INCREASES (DECREASES) (Unaudited) (Dollars in thousands)
THREE MONTHS ENDED SEPTEMBER 30, 1997 CHANGE FROM 1996* --------------------------------------------------------- DUE TO (1) TOTAL VOLUME RATE MIX ----------- ---------- --------- --------------- INTEREST INCOME: Total Loans, Net $ 18,295 $ 16,676 $ 1,336 $ 283 Mortgage loans held for sale 269 444 (151) (24) Investment securities and securities available for sale and other interest-earning assets 2,762 1,991 662 109 -------- -------- ------- ----- Total interest income (2) 21,326 19,111 1,847 368 -------- -------- ------- ----- INTEREST EXPENSE: Interest bearing deposits 8,419 8,290 87 42 Short-term borrowings 825 497 322 6 Long-term debt 1,288 962 137 189 -------- -------- ------- ----- Total interest expense 10,532 9,749 546 237 -------- -------- ------- ----- Net Interest Income $ 10,794 $ 9,362 $ 1,301 $ 131 ======== ======== ======= ===== NINE MONTHS ENDED SEPTEMBER 30, 1997** CHANCE FROM 1996* -------------------------------------------------------- DUE TO (1) TOTAL VOLUME RATE MIX ----------- ---------- --------- ------------- INTEREST INCOME: Total Loans, Net $ 54,041 $ 53,851 $ -- $ 190 Mortgage loans held for sale (34) (151) 116 1 Investment securities and securities available for sale and other interest-earning assets 7,748 5,446 1,985 317 -------- -------- ------- ----- Total interests income (2) 61,755 59,146 2,101 508 -------- -------- ------- ----- INTEREST EXPENSE: Interest bearing deposits 25,499 26,185 (496) (190) Short-term borrowings 1,963 1,459 530 (26) Long-term debt 3,484 2,492 445 547 -------- -------- ------- ----- Total interest expense 30,946 30,136 479 331 -------- -------- ------- ----- Net Interest Income $ 30,809 $ 29,010 $ 1,622 $ 177 ======== ======== ======= =====
* Restated financial results above reflect the business combinations with Jefferson Bancorp, Inc., D/W Bankshares, Inc. and Fort Brooke Bancorporation. These mergers were accounted for as poolings of interests and the financial results have been restated accordingly ** Restated financial results above reflect the business combination with Great Southern Bancorp on July 1, 1997. This merger was accounted for as a pooling of interests and the 1997 financial results have been restated accordingly (1) Increases (decreases) are attributable to volume changes and rate changes on the following basis: Volume Change = change in volume times old rate; Rate Change = change in rate times old volume; Mix Change = change in volume times change in rate. (2) Interest earned on obligations of state and political subdivisions is reflected on a tax equivalent basis. Tax equivalent interest rate is: actual interest earned times 145%. The taxable equivalent adjustment has given effect to the disallowance of interest for federal income tax purposes, related to certain tax-free assets. Dividends earned on preferred stock are reflected on a tax equivalent basis. Tax equivalent dividends earned are: actual dividends times 137.7%. Tax equivalent average rate is tax equivalent interest or dividends earned divided by average volume. 13 16 NET INTEREST INCOME: Net interest income on a tax equivalent basis increased $10.8 million to $63.5 million for the quarter ended September 30, 1997 from $52.7 million for the quarter ended September 30, 1996. The net yield on interest earning assets increased from 4.22% to 4.30% for the three months ended September 30, 1996 and 1997, respectively, while the rate differential increased from 3.48% to 3.51% for the three month period ended September 30, 1997 and 1996, respectively. Net interest income on a tax equivalent basis increased $30.8 million to $182.1 million for the nine months ended September 30, 1997 from $151.3 million for the same period in 1996. The net yield on interest earning assets increased from 4.25% to 4.28% for the nine months ended September 30, 1996 and 1997, respectively, while the rate differential increased from 3.52% to 3.57% for the nine months ended September 30, 1996 compared to 1997. As reflected on the previous tables, the increase for the three and nine months was primarily attributable to loan growth, which was partially offset by an increase in deposits. The prime rate decreased to 8.5% in December 1995 and continued to decline to 8.25% in 1996. During the first quarter of 1997 the prime rate increased to 8.50%. This increase in prime will be reflected in increasing rates as repricing occurs. LOAN LOSS PROVISION: The provision for loan losses for the first nine months of 1997 was $8,833,000 compared to $6,292,000 for the same period in 1996. Asset quality remains good. The current allowance for loan losses provides a 151% coverage of nonperforming assets compared to 156% at December 31, 1996 and 144% at September 30, 1996. See management's discussion on loan quality and the allowance for possible loan losses presented in the Financial Condition section of this report NONINTEREST INCOME: Noninterest income increased $7.7 million for the nine months ended September 30, 1997 compared to the same period in 1996. The increase is primarily due to increased mortgage servicing related fee income of $4 million, additional fees on deposit accounts of $2.5 million and $.9 million in other income. The increase in noninterest income for the three months ended September 1997 compared to the three months ended September 30, 1996 of $3.5 million is primarily due to $2 million in increased mortgage servicing fees and $1.4 million additional fees on deposit accounts. Mortgage servicing fees increased due to an increase in the servicing portfolio of $2.2 million to $12.5 million for the nine months ended September 30, 1997 from $10.3 million for the same period in 1996. Colonial Mortgage provides additional sources of noninterest income to BancGroup through fees from its $12.5 billion servicing portfolio as well as loan originations from its 4 divisional offices. Colonial Mortgage originates loans in 36 states. Colonial Mortgage had noninterest income of $10.8 million and $31.9 million for the three and nine months ended September 30, 1997, respectively, compared to $7.5 million and $22.1 million for the three and nine months ended September 30, 1996, respectively. OVERHEAD EXPENSES: BancGroup's net overhead expense (total noninterest expense less noninterest income excluding security gains) was $28.2 million and $28.4 million for the three months ended September 30, 1997 and 1996, respectively, and $82.1 million and $75.6 million for the nine months ended September 30, 1997 and 1996, respectively. Noninterest expenses increased $14.2 million and $3.3 million for the nine and three months ended September 30, 1997, compared to the same period in 1996. The majority of this increase is related to salary and benefit expense increases of $6.8 million and $3.9 million for the nine and three months ended September 30, 1997, as compared to the same period in 1996. The increase in salaries and benefits is primarily due to increased staffing levels as a result of activity related to business combinations and normal wage increases. Acquisition related expenses include legal and accounting costs, asset write-offs, contract buyouts and severance costs in connection with the acquisition of various banking institutions and the integration of those companies into BancGroup's systems. These are one-time costs with respect to each individual transaction, but represent ongoing expenses so long as BancGroup continues its acquisition program. Acquisition expenses increased approximately $1.7 million from $1.6 million for the first nine months of 1996 to $3.3 million for the first nine months of 1997. Other noninterest expenses for the nine months ended September 30, 1997 increased over September 30, 1996 by $1.4 million. This increase is mostly attributable to an increase in advertising expenses and computer services. PROVISION FOR INCOME TAXES: BancGroup's provision for income taxes is based on an approximately 37.8% and 35.2%, respectively, estimated annual effective tax rate for the years 1997 and 1996, respectively. The provision for income taxes for the nine months ended September 30, 1997 and 1996 was $33,460,000 and $23,794,000, respectively. 14 17 PART II OTHER INFORMATION ITEM 1: Legal Proceedings - See Note C - COMMITMENTS AND CONTINGENCIES AT PART 1 ITEM 1 ITEM 2: Changes in Securities - N/A ITEM 3: Defaults Upon Senior Securities - N/A ITEM 4: Submission of Matters to a Vote of Security Holders - N/A ITEM 5: Other Events - N/A ITEM 6: Exhibits and Reports on Form 8-K Exhibit 11 - Computation of Earnings Per Share Exhibit 27 - Financial Data Schedule (for SEC purposes only). Report on Form 8-K was filed on October 31, 1997 disclosing the approval of the nomination of Purser L. McLeod, Jr. as President of the Registrant. 15 18 SIGNATURE Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THE COLONIAL BANCGROUP, INC. Date: November 13, 1997 By: /s/ W. Flake Oakley, IV ------------------------------------- W. Flake Oakley, IV Its Chief Financial Officer EX-11 2 COMPUTATION OF EARNINGS PER SHARE 1 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE SEPTEMBER 30, 1997 (Unaudited) (In thousands, except per share amounts) EXHIBIT 11
Primary Fully Diluted ------------------- ---------------------- Q-T-D Y-T-D Q-T-D Y-T-D ------- ------- ------- ------- Net income $20,049 $56,054 $ 20,049 56,054 Interest expense on convertible subordinated debentures 117 356 Tax effect @ 37.8% for the quarter and 36.9% year to date (44) (134) ------- ------- -------- -------- Net income $20,049 $56,054 $ 20,122 $ 56,276 ======= ======= ======== ======== Average shares outstanding 41,932 41,601 41,932 41,601 Effect of stock options 826 769 826 769 ------- ------- -------- -------- Primary average shares outstanding 42,758 42,370 42,758 42,370 ======= ======= ======== ======== Contingent shares: Convertible subordinated debentures 479 593 -------- -------- Fully diluted average shares outstanding 43,237 42,963 ======== ======== Earnings per share: Net Income $ 0.47 $ l.32 $ 0.47 $ 1.31 ======= ======= ======== ========
17 EX-27 3 FINANCIAL DATA SCHEDULE
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF COLONIAL BANCGROUP, INC. FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 U.S. DOLLARS 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 1 221,463 14,013 2,470 0 524,740 311,796 311,384 4,970,765 61,913 6,605,927 5,136,556 795,333 100,586 101,099 0 0 104,910 367,443 6,605,927 321,289 39,944 1,597 362,830 146,277 182,497 180,333 8,833 63 143,609 89,514 89,514 0 0 56,054 1.32 1.31 4.28 27,230 6,048 1,061 162,600 53,443 9,352 2,806 61,913 61,913 0 1,493
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