-----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, C6HVAS94efFZXH1q6bej+WSoXMrBwkOP7ajMGNieq2CXrmMqUPZBptE7XD7df4kV q39g49rKRxd+9TRetNNPQg== 0000950144-98-003577.txt : 19980331 0000950144-98-003577.hdr.sgml : 19980331 ACCESSION NUMBER: 0000950144-98-003577 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980330 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: SEC FILE NUMBER: 001-13508 FILM NUMBER: 98577897 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 COLONIAL BANCGROUP 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, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE #0-07945
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 February 27, 1998 based on the closing price of $34.00 per share for Common Stock was $1,334,377,090. (For purposes of calculating this amount, all directors, officers and principal shareholders of the registrant are treated as affiliates). Shares of Common Stock outstanding at February 27, 1998 were 48,092,093. DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT PART OF FORM 10-K -------- ----------------- Portions of Annual Report to Shareholders Part I, for fiscal year ended December 31, 1997 Part II, as specifically referred to herein. and Part IV Portions of Definitive Proxy Statement Part III for 1998 Annual Meeting as specifically referred to herein.
================================================================================ 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. In 1997, pursuant to the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, BancGroup consolidated its banking subsidiaries located in Georgia, Florida and Tennessee into its banking subsidiary in Alabama, Colonial Bank ("Colonial Bank"). Colonial Bank has 125 branches in Alabama, 52 branches in Florida, 14 branches in Georgia and 5 branches in Tennessee. Colonial Bank conducts a general commercial banking business in its respective service areas and offers banking services such as the receipt of demand, savings and time deposits credit card services, safe deposit box services, the purchase and sale of investment securities and the extension of credit through personal, commercial and mortgage loans. Colonial Bank is active as a correspondent bank for unaffiliated banks. Colonial Mortgage Company ("CMC") is a subsidiary of Colonial Bank and is a mortgage banking company. CMC operates retail offices in Alabama and 4 regional offices covering 44 states and the District of Columbia which service approximately $12.9 billion in residential loans. CMC's retail operation offers conventional, government and jumbo loan products directly to borrowers. CMC's wholesale operation offers somewhat limited products comprised of conventional and jumbo loan products to various mortgage brokers. CMC offers a wholesale government program from its home office in Montgomery, Alabama. CMC has relationships with all housing agencies such as VA, the Department of Housing and Urban Development, FHA, FHLMC and FNMA. CMC underwrites, closes and sells loans according to the guidelines required by these agencies. At December 31, 1997, BancGroup's banking subsidiary accounted for approximately 98% of BancGroup's consolidated assets. The principal activity of BancGroup is to supervise and coordinate the business of its subsidiaries and to provide them with capital and services. BancGroup derives substantially all of its income from dividends received from Colonial Bank. Various statutory provisions and regulatory policies limit the amount of dividends Colonial Bank may pay without regulatory approval. In addition, federal statutes restrict the ability of Colonial Bank to make loans to BancGroup. BancGroup's affiliate bank encounters intense competition in its commercial banking business, generally from other banks located in its respective metropolitan and service areas. Colonial Bank competes for interest bearing funds with other banks and with many issuers of commercial paper and other securities which are not banks. In the case of larger customers, competition exists with banks in other metropolitan areas of the United States, many of which are larger in terms of capital resources and personnel. In the conduct of certain aspects of its commercial banking business, Colonial Bank competes with savings and loan associations, credit unions, factors, insurance companies and other financial institutions. BancGroup has three direct nonbanking subsidiaries. The Colonial BancGroup Building Corporation was established primarily to own and lease the buildings and land used by the banking affiliate of BancGroup. Dadeland Software Services, Inc. was acquired simultaneously with the Dadeland BancShares, Inc. merger on September 15, 1997 and owns a 20% interest in a joint venture which provides data processing, computer software, and related consulting services to banks and other financial institutions. Colonial Capital II, a Delaware business trust, issued $70 million in trust preferred securities, which are guaranteed by BancGroup, in 1997. BancGroup employs approximately 2,955 persons. BancGroup's principal offices are located at and its mailing address is: One Commerce Street, Post Office Box 1108, Montgomery, Alabama 36101. Its telephone number is (334) 240-5000. 1 3 LENDING ACTIVITIES BancGroup's commercial banking loan portfolio is comprised primarily of commercial real estate loans (27%) and residential real estate loans (42%). BancGroup's growth in loans over the past several years has been concentrated in commercial and residential real estate loans. The lending activities of Colonial Bank are dependent upon the demands within the local markets of its branches. Based on this demand, loans collateralized by commercial and residential real estate have been the fastest growing component of Colonial Bank's loan portfolio. BancGroup, through the branches and offices of Colonial Bank, makes loans for a range of business and personal uses in response to local demands for credit. Loans are concentrated in Alabama, Tennessee, Georgia and Florida and are dependent upon economic conditions in those states. The Alabama economy experiences a generally slow but steady rate of growth, while Georgia and Florida are experiencing higher rates of growth. The following broad categories of loans have varying risks and underwriting standards. - - Commercial Real Estate. Loans classified as commercial real estate loans are loans which are collateralized by real estate and substantially dependent upon cash flow from income-producing improvements attached to the real estate. For BancGroup, these primarily consist of apartments, hotels, office buildings, shopping centers, amusement/recreational facilities, one to four family residential housing developments, and health service facilities. Loans within this category are underwritten based on projected cash flows and loan-to-appraised-value ratios of 80% or less. The risks associated with commercial real estate loans primarily relate to real estate values in local market areas, the equity investments of borrowers, and the borrowers' experience and expertise. BancGroup has diversified its portfolio of commercial real estate loans with less than 10% of its total loan portfolio concentrated in any of the above-mentioned income producing activities. - - Real Estate Construction. Construction loans include loans to finance single family and multi-family residential as well as nonresidential real estate. Loan values for these loans are from 80% to 85% of completed appraised values. The principal risks associated with these loans are related to the borrowers' ability to complete the project and local market demand, the sales market, presales or preleasing, and permanent loan commitments. BancGroup evaluates presale requirements, preleasing rates, permanent loan take-out commitments, as well as other factors in underwriting construction loans. - - Real Estate Mortgages. These loans consist of loans made to finance one to four family residences and home equity loans on residences. BancGroup may loan up to 95% of appraised value on these loans without other collateral or security. The principal risks associated with one to four family residential loans are the borrowers' debt coverage ratios and real estate values. - - Commercial, Financial, and Agricultural. Loans classified as commercial, financial, and agricultural consist of secured and unsecured credit lines and equipment loans for various industrial, agricultural, commercial, retail, or service businesses. The risk associated with loans in this category are generally related to the earnings capacity and cash flows generated from the individual business activities of the borrowers. Collateral consists primarily of business equipment, inventory, and accounts receivables with loan-to-value ratios of less than 80%. Credit may be extended on an unsecured basis or in excess of 80% of collateral value in circumstances as described in the paragraph below. - - Installment and Consumer. Installment and consumer loans are loans to individuals for various purposes. Automobile loans and unsecured loans make up the majority of these loans. The principal source of repayment is the earning capacity of the individual borrowers as well as the value of the collateral for secured loans. Installment and consumer loans are sometimes made on an unsecured basis or with loan-to-value ratios in excess of 80%. Collateral values referenced above are monitored by loan officers through property inspections, reference to broad measures of market values, as well as current experience with similar properties or collateral. Loans with loan-to-value ratios in excess of 80% have potentially higher risks which are offset by other factors 2 4 including the borrower's or guarantors' credit worthiness, the borrower's other banking relationships, the bank's lending experience with the borrower, and any other potential sources of repayment. Colonial bank funds loans primarily with customer deposits approximately 10% of which are considered more rate sensitive or volatile than other deposits. CERTAIN REGULATORY CONSIDERATIONS BancGroup is a registered bank holding company subject to supervision and regulation by the Board of Governors of the Federal Reserve System (the "Federal Reserve"). As such, it is subject to the BHCA and many of the Federal Reserve's regulations promulgated thereunder. Colonial Bank, an Alabama state chartered bank that is a member of the Federal Reserve System, is subject to supervision and examination by the Federal Reserve and the Alabama State Banking Department (the "Department"). The deposits of Colonial Bank are insured by the FDIC to the extent provided by law. The FDIC assesses deposit insurance premiums the amount of which may, in the future, depend in part on the condition of Colonial Bank. Moreover, the FDIC may terminate deposit insurance of Colonial Bank under certain circumstances. Both the Federal Reserve and the Department have jurisdiction over a number of the same matters, including lending decisions, branching and mergers. One limitation under the BHCA and the Federal Reserve's regulations requires that BancGroup obtain prior approval of the Federal Reserve before BancGroup acquires, directly or indirectly, more than 5% of any class of voting securities of another bank. Prior approval also must be obtained before BancGroup acquires all or substantially all of the assets of another bank, or before it merges or consolidates with another bank holding company. BancGroup may not engage in "non-banking" activities unless it demonstrates to the Federal Reserve's satisfaction that the activity in question is closely related to banking and a proper incident thereto. Because BancGroup is a registered bank holding company, persons seeking to acquire 25% or more of any class of its voting securities must receive the approval of the Federal Reserve. Similarly, under certain circumstances, persons seeking to acquire between 10% and 25% also may be required to obtain prior Federal Reserve approval. In 1989, Congress expressly authorized the acquisition of savings associations by bank holding companies. BancGroup must obtain the prior approval of the Federal Reserve (among other agencies) before making such an acquisition, and must demonstrate that the likely benefits to the public of the proposed transaction (such as greater convenience, increased competition, or gains in efficiency) outweigh potential burdens (such as an undue concentration of resources, decreased or unfair competition, conflicts of interest, or unsound banking practices). As a result of enactment in 1991 of the FDIC Improvement Act, banks are subject to increased reporting requirements and more frequent examinations by the bank regulatory agencies. The agencies also have the authority to dictate certain key decisions that formerly were left to management, including compensation standards, loan underwriting standards, asset growth, and payment of dividends. Failure to comply with these standards, or failure to maintain capital above specified levels set by the regulators, could lead to the imposition of penalties or the forced resignation of management. If a bank becomes critically undercapitalized, the banking agencies have the authority to place an institution into receivership or require that the bank be sold to, or merged with, another financial institution. In September 1994, Congress enacted the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994. This legislation, among other things, amended the BHCA to permit bank holding companies, subject to certain limitations, to acquire either control or substantial assets of a bank located in states other than that bank holding company's home state regardless of state law prohibitions. This legislation became effective on September 29, 1995. In addition, this legislation also amended the Federal Deposit Insurance Act to permit, beginning on June 1, 1997 (or earlier where state legislatures provided express authorization), the merger of insured banks with banks in other states. The officers and directors of BancGroup and Colonial Bank are subject to numerous insider transaction restrictions, including limits on the amount and terms of transactions involving Colonial Bank, on the one 3 5 hand, and its principal stockholders, officers, directors, and affiliates on the other. There are a number of other laws that govern the relationship between Colonial Bank and its customers. For example, the Community Reinvestment Act is designed to encourage lending by banks to persons in low and moderate income areas. The Home Mortgage Disclosure Act and the Equal Credit Opportunity Act attempt to minimize lending decisions based on impermissible criteria, such as race or gender. The Truth-in-Lending Act and the Truth-in-Savings Act require banks to provide certain disclosure of relevant terms related to loans and savings accounts, respectively. Anti-tying restrictions (which prohibit, for instance, conditioning the availability or terms of credit on the purchase of another banking product) further restrict Colonial Bank's relationships with its customers. The bank regulatory agencies have broad enforcement powers over depository institutions under their jurisdiction, including the power to terminate deposit insurance, to impose fines and other civil and criminal penalties, and to appoint a conservator or receiver if any of a number of conditions are met. The Federal Reserve has broad enforcement powers over bank holding companies, including the power to impose substantial fines and civil penalties. The Federal Reserve has established a Year 2000 Supervision Program and published guidelines for implementing procedures to bring computer software programs and processing systems into Year 2000 compliance. In compliance with the guidelines of the Federal Reserve, BancGroup has established a full time Year 2000 task force to address all Year 2000 compliance issues as well as enhancements to computer and communications systems resulting from upgrades initiated in response to Year 2000 issues. Currently BancGroup is in the process of implementing its plans to bring all major computer systems into Year 2000 compliant status by the last quarter of 1998. Testing of all systems and changes will begin in the last quarter of 1998 and continue through the full year of 1999. The major computer systems involved are: - Colonial Bank's mainframe based systems: These systems are provided by third-party vendors of national stature. Upgrades to these systems are in progress and are intended to bring the systems into Year 2000 compliant status and provide enhancements to current capabilities. The costs associated with these upgrades are part of BancGroup's ongoing operating costs. - Colonial Mortgage Company's (CMC) servicing and production systems: CMC's systems are primarily in-house systems and are currently being rewritten to Year 2000 compliant status. The cost of the rewrites is estimated to be $1.0 million and is incremental to BancGroup's ongoing operating costs. This cost is expected to be incurred through September 30, 1998. In addition, CMC's computer hardware is being upgraded to Year 2000 compliant status. This upgrade will also provide additional capacity for the servicing systems as well as an enhanced capability for production. The additional annual cost of the mainframe upgrade (approximately $240,000) is expected to be absorbed through growth in the servicing portfolio and through increased production. - Branch automation operating systems: Colonial Bank's branch automation operating systems are being converted to Windows NT from OS/2. This conversion along with establishment of an intranet and increased capacity of communication lines is the most cost effective method of bringing the operating system to Year 2000 compliant status while allowing for more efficient flow of information to and from the branches and providing the highest assurance of continuing vendor support for BancGroup's branch automation solution. The incremental operating cost for these upgrades (approximately $400,000 annually) is expected to be absorbed through operational efficiencies and increased revenue. BancGroup will incur a one-time pretax charge during the first quarter of 1998 of approximately $2 million to write-off the remaining book value of the current branch automation equipment that is not Windows NT compatible. BancGroup incurred $432,000 in costs during 1997 related to assessing the status of BancGroup's systems and defining its strategy to bring all systems into Year 2000 compliance. BancGroup expects to incur certain additional third-party costs totaling approximately $300,000 in 1998 relating to the completion of the assessment of BancGroup's systems and the definition of its strategy to bring all systems into Year 2000 compliance. These costs have been and will continue to be expensed as incurred and are not significant to BancGroup's on-going operating costs. 4 6 The above reflects management's current assessment and estimates. Various factors could cause actual results to differ materially from those contemplated by such assessments, estimates and forward-looking statements. Some of these factors may be beyond the control of BancGroup, including but not limited to, vendor representations, technological advancements, economic factors and competitive considerations. Management's evaluation of Year 2000 compliance and technological upgrades is an on-going process involving continual evaluation. Unanticipated problems could develop and alternative solutions may be available that could cause current solutions to be more difficult or costly than currently anticipated. PAYMENT OF DIVIDENDS AND OTHER RESTRICTIONS BancGroup is a legal entity separate and distinct from its subsidiaries, including Colonial Bank. There are various legal and regulatory limitations on the extent to which BancGroup's subsidiaries, including among other things, can finance, or otherwise supply funds to, BancGroup. Specifically, dividends from Colonial Bank are the principal source of BancGroup's cash revenues and there are certain legal restrictions under federal and state law on the payment of dividends by banks. The relevant regulatory agencies also have authority to prohibit Colonial Bank from engaging in what, in the opinion of such regulatory body, constitutes an unsafe or unsound banking practice. The payment of dividends could, depending upon the financial condition of Colonial Bank, be deemed to constitute such an unsafe or unsound practice. In addition, Colonial Bank and its subsidiaries are subject to limitations under Section 23A of the Federal Reserve Act with respect to extensions of credit to, investments in, and certain other transactions with, BancGroup and its other subsidiaries. Furthermore, loans and extensions of credit are also subject to various collateral requirements. CAPITAL ADEQUACY The Federal Reserve has adopted minimum risk-based and leverage capital guidelines for bank holding companies. The minimum required ratio of total capital to risk-weighted assets (including certain off-balance-sheet items, such as standby letters of credit) is 8%, of which 4% must consist of Tier 1 capital. As of December 31, 1997, BancGroup's total risk-based capital ratio was 11.30%, including 9.93% of Tier 1 capital. The minimum required leverage capital ratio (Tier 1 capital to average total assets) is 3% for banking organizations that meet certain specified criteria, including that they have the highest regulatory rating. A minimum leverage ratio of an additional 100 to 200 basis points is required for banking organizations not meeting these criteria. As of December 31, 1997, BancGroup's leverage capital ratio was 7.47%. Failure to meet capital guidelines can subject a banking organization to a variety of enforcement remedies, including restrictions on its operations and activities. As regards depository institutions, federal banking statutes establish five capital categories ("well capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized" and "critically undercapitalized"), and impose significant restrictions on the operations of an institution that is not at least adequately capitalized. Under certain circumstances, an institution may be downgraded to a category lower than that warranted by its capital levels, and subjected to the supervisory restrictions applicable to institutions in the lower capital category. An undercapitalized depository institution is subject to restrictions in a number of areas, including capital distributions, payments of management fees and expansion. In addition, an undercapitalized depository institution is required to submit a capital restoration plan. A depository institution's holding company must guarantee the capital plan up to an amount equal to the lesser of 5% of the depository institution's assets at the time it becomes undercapitalized or the amount needed to restore the capital of the institution to the levels required for the institution to be classified as adequately capitalized at the time the institution fails to comply with the plan. A depository institution is treated as if it is significantly undercapitalized if it fails in any material respect to implement a capital restoration plan. Significantly undercapitalized depository institutions may be subject to a number of additional significant requirements and restrictions, including requirements to sell sufficient voting stock to become adequately 5 7 capitalized, to improve management, to restrict asset growth, to prohibit acceptance of correspondent bank deposits, to restrict senior executive compensation and to limit transactions with affiliates. Critically undercapitalized depository institutions are further subject to restrictions on paying principal or interest on subordinated debt, making investments, expanding, acquiring or selling assets, extending credit for highly-leveraged transactions, paying excessive compensation, amending their charters or bylaws and making any material changes in accounting methods. In general, a receiver or conservator must be appointed for a depository institution within 90 days after the institution is deemed to be critically undercapitalized. SUPPORT OF SUBSIDIARY BANK Under Federal Reserve Board policy, BancGroup is expected to act as a source of financial strength to, and to commit resources to support, Colonial Bank. This support may be required at times when, absent such Federal Reserve Board policy, BancGroup might not otherwise be inclined to provide it. In the event of a bank holding company's bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to a priority of payment. FDIC INSURANCE ASSESSMENTS Colonial Bank is subject to FDIC deposit insurance assessments. The FDIC applies a risk-based assessment system that places financial institutions in one of nine risk categories with premium rates, based on capital levels and supervisory criteria, ranging from 0.00% to 0.27% of deposits. The FDIC has the authority to raise or lower assessment rates on insured deposits in order to achieve certain designated reserve ratios in the deposit insurance funds. It should be noted that supervision, regulation, and examination of BancGroup and Colonial Bank are intended primarily for the protection of depositors, not security holders. ADDITIONAL INFORMATION Additional information, including statistical information concerning the business of BancGroup, is set forth in BancGroup's Annual Report to Shareholders for the year ended December 31, 1997, at pages 22 through 48 under the captions "Selected Financial Data, Selected Quarterly Data 1997-1996" and "Management's Discussion and Analysis of Financial Condition and Results of Operations", and is incorporated herein by reference. EXECUTIVE OFFICERS AND DIRECTORS Pursuant to general instruction G, information regarding executive officers of BancGroup is contained herein at Item 10. ITEM 2. PROPERTIES The principal executive offices of BancGroup, Colonial Bank, and Colonial Mortgage are located in Montgomery, Alabama in the Colonial Financial Center and are leased from G.C. Associates I, Joint Venture, a partnership owned 50% by affiliates of BancGroup's principal stockholders. These leased premises comprise 68,142 square feet of office space. As of December 31, 1997, Colonial Bank owned 140 and leased 56 of their full-service banking offices. See Notes 7 and 12 of the Consolidated Financial Statements included in the Annual Report to Shareholders, which is incorporated herein by reference. ITEM 3. LEGAL PROCEEDINGS In the opinion of BancGroup, based on review and consultation with legal counsel, the outcome of any litigation presently pending is not anticipated to have a material adverse effect on BancGroup's consolidated financial statements or results of operations. 6 8 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS "Market Price of and Dividends Declared on Common Stock" is contained on page 71 of the Annual Report to Shareholders for the year ended December 31, 1997, and is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA "Selected Financial Data" and "Selected Quarterly Financial Data 1997-1996" on pages 22 through 24 of the Annual Report to Shareholders for the year ended December 31, 1997 are incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 25 through 48 of the Annual Report to Shareholders for the year ended December 31, 1997 is incorporated herein by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 44 through 46 of the Annual Report to Shareholders for the year ended December 31, 1997 is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements set forth in BancGroup's Annual Report to Shareholders for 1997 at pages 49 through 70 are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item as to BancGroup's directors is contained in BancGroup's proxy statement dated March 13, 1998, under the captions "Election of Directors" and "Section 16 (a) Beneficial Ownership Reporting Compliance," and is incorporated herein by reference. 7 9 EXECUTIVE OFFICERS OF THE REGISTRANT
NAME, AGE AND YEAR BECAME POSITION AND OFFICES HELD WITH BANCGROUP PRESENT AND PRINCIPAL OCCUPATION FOR EXECUTIVE OFFICER AND SUBSIDIARIES THE LAST FIVE YEARS - --------------------------- ---------------------------------------- ------------------------------------ Robert E. Lowder........... Chairman of the Board and Chief Chairman of the Board and Chief 55, 1981 Executive Officer, Colonial BancGroup; Executive Officer, Colonial Chairman of the Board and Chief BancGroup; Chairman of the Board Executive Officer, Colonial Bank; and Chief Executive Officer, Director, Birmingham Region; Director, Colonial Bank; Chairman of the Huntsville Region; Director, Northwest Board, Colonial Mortgage Co.; Region; Director, East Central Region; Chairman of the Board and Director, Gulf Coast Region; Director, President, Colonial Broadcasting, Montgomery Region; Director, Central Montgomery, AL Florida Region; Director, South Florida Region; Director, Bay Area Region; Director, Southwest Florida Region; Director, Atlanta Region; Chairman of the Board, Colonial Mortgage Co. P.L. "Mac" McLeod, Jr...... President, Colonial BancGroup; Director, President, Colonial BancGroup since 49, 1997 Montgomery Region; Director, North August 1997; President and CEO, Georgia Region Colonial Bank Montgomery Region 1984 to August 1997, Montgomery, AL W. Flake Oakley, IV........ Executive Vice President, Chief Chief Financial Officer, Secretary 44, 1989 Financial Officer, Treasurer and and Treasurer, BancGroup, since Secretary June 1991; Chief Financial Officer and Treasurer since October, 1990; Senior Vice President and Controller from April 1989 to October 1990, BancGroup, Montgomery, AL Young J. Boozer, III....... Executive Vice President -- Risk Executive Vice President -- Risk 49, 1986 Management -- Executive Vice Management, BancGroup; President, President, Colonial BancGroup Building Colonial Investment Services 1993 Corp. to 1997, Montgomery, AL Michelle Condon............ Executive Vice President -- Retail Executive Vice President -- Retail 43, 1995 Banking Banking, BancGroup since 1995; Colonial Bank -- Vice President, Budgeting & Planning, Colonial Bank 1990 to 1995, Montgomery, AL
ITEM 11. EXECUTIVE COMPENSATION The information required by this item is contained in BancGroup's proxy statement dated March 13, 1998 under the caption "Executive Compensation" and is incorporated herein by reference. 8 10 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is contained in BancGroup's proxy statement dated March 13, 1998 under the caption "Voting Securities and Principal Stockholders" and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is contained in BancGroup's proxy statement dated March 13, 1998 under the captions "Compensation Committee Interlocks and Insider Participation" and "Executive Compensation" and is incorporated herein by reference. CAUTIONARY STATEMENT PURSUANT TO SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995: This report contains "forward-looking statements" within the meaning of the federal securities laws. The forward-looking statements in this report are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in or implied by the statements. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include, among other things, the following possibilities: (i) deposit attrition, customer loss, or revenue loss in the ordinary course of business; (ii) increases in competitive pressure in the banking industry; (iii) costs or difficulties related to the integration of the businesses of BancGroup and the institutions acquired are greater than expected; (iv) changes in the interest rate environment which reduce margins (v) general economic conditions, either nationally or regionally, that are less favorable then expected, resulting in, among other things, a deterioration in credit quality; (vi) changes which may occur in the regulatory environment; (vii) a significant rate of inflation (deflation); and (viii) changes in the securities markets. When used in this Report, the words "believes," "estimates," "plans," "expects," "should," "may," "might," "outlook," and "anticipates," and similar expressions as they relate to BancGroup (including its subsidiaries), or its management are intended to identify forward-looking statements. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. Financial Statements The following financial statements are incorporated herein by reference from Registrant's Annual Report to Shareholders for the fiscal year ended December 31, 1997; Consolidated Statements of Condition as of December 31, 1997 and 1996. Consolidated Statements of Income for the years ended December 31, 1997, 1996 and 1995. Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 1997, 1996 and 1995. Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995. Notes to Consolidated Financial Statements, including Parent Company only information. Report of Independent Accountants. 2. Financial Statements Schedules The financial statement schedules required to be included pursuant to this Item are not included herein because they are not applicable or the required information is shown in the financial statements or notes thereto which are incorporated by reference at subsection 1 of this Item, above. 9 11 3. Exhibits
EXHIBITS AND DESCRIPTION ------------------------ Exhibit 3 -- Articles of Incorporation and Bylaws: 3.1 -- Restated Certificate of Incorporation of the Registrant, filed as Exhibit 4.1 to the Registrant's Current Report on Form 8-K, dated February 21, 1995, and incorporated herein by reference. 3.2 -- Amendment of Registrant's Restated Certificate of Incorporation, dated April 16, 1997, filed as Exhibit 4(A)(2) to the Registrant's Registration Statement on Form S-4 (File No. 333-26217), effective May 9, 1997, and incorporated herein by reference. 3.3 -- Bylaws of the Registrant, as amended, filed as Exhibit 4.2 to the Registrant's Current Report on Form 8-K, dated February 21, 1995, and incorporated herein by reference. Exhibit 4 -- Instruments defining the rights of security holders: 4.1 -- Article 4 of the Restated Certificate of Incorporation of the Registrant filed as Exhibit 4.1 to the Registrant's Current Report on Form 8-K, dated February 21, 1995, and incorporated herein by reference. 4.2 -- Amendment to Article 4 of Registrant's Restated Certificate of Incorporation, dated April 16, 1997, filed as Exhibit 4(A)(2) to the Registrant's Registration Statement on Form S-4 (File No. 333-26217), effective May 9, 1997, and incorporated herein by reference. 4.3 -- Article II of the Bylaws of the Registrant filed as Exhibit 4.2 to the Registrant's Current Report on Form 8-K, dated February 21, 1995, and incorporated herein by reference. 4.4 -- Dividend Reinvestment and Common Stock Purchase Plan of the Registrant dated January 15, 1986, and Amendment No, 1 thereto dated as of June 10, 1986, filed as Exhibit 4(C) to the Registrant's Registration Statement on Form S-4 (File No, 33-07015), effective July 15, 1986, and incorporated herein by reference. 4.5 -- All instruments defining the rights of holders of long-term debt of the Corporation and its subsidiaries. Not filed pursuant to clause 4(iii) of Item 601(b) of Regulation S-K; to be furnished upon request of the Commission. Exhibit 10 -- Material Contracts: 10.1 -- Second Amendment and Restatement of 1982 Incentive Stock Plan of the Registrant, filed as Exhibit 4-1 to the Registrant's Registration Statement on Form S-8 (File No. 33-41036), effective June 4, 1991, and incorporated herein by reference. 10.2 -- Second Amendment and Restatement to 1982 Nonqualified Stock Option Plan of the Registrant filed as Exhibit 4-2 to the Registrant's Registration Statement on Form S-8 (File No. 33-41036), effective June 4, 1991, and incorporated herein by reference. 10.3 -- 1992 Incentive Stock Option Plan of the Registrant, filed as Exhibit 4-1 to Registrant's Registration Statement on Form S-8 (File No. 33-47770), effective May 8, 1992, and incorporated herein by reference. 10.4 -- 1992 Nonqualified Stock Option Plan of the Registrant, filed as Exhibit 4-2 to Registrant's Registration Statement on Form S-8 (File No. 33-47770), effective May 8, 1992, and incorporated herein by reference. 10.5 -- Amended and Restated Loan Agreement by and between the Registrant and SunTrust Bank, Central Florida, National Association, dated December 20, 1996, filed as Exhibit 10(B)(2) to the Registrant's Registration Statement on Form S-4, (File No. 333-20291), and incorporated herein by reference.
10 12
EXHIBITS AND DESCRIPTION ------------------------ 10.6 -- The Colonial BancGroup, Inc. First Amended and Restated Restricted Stock Plan for Directors, as amended, included as Exhibit 10(C)(1) to the Registrant's Registration Statement on Form S-4 (File No. 33-52952), and incorporated herein by reference. 10.7 -- The Colonial BancGroup, Inc. Stock Bonus and Retention Plan, included as Exhibit 10(C)(2) to the Registrant's Registration Statement as Form S-4 (File No. 33-52952), and incorporated herein by reference. 10.8 -- Indenture dated as of January 29, 1997 between The Colonial BancGroup, Inc. and Wilmington Trust Company, as Debenture Trustee dated as of, included as Exhibit 4(A) to Registrant's Registration Statement on Form S-4 (File No. 333-22135), and incorporated herein by reference. 10.9 -- Agreement and Plan of Merger between The Colonial BancGroup, Inc. and ASB Bancshares, Inc., dated as of August 28, 1997, included as Appendix A to the Prospectus in Registrant's Registration Statement on Form S-4 (File No. 333-39271), and incorporated herein by reference. 10.10 -- Agreement and Plan of Merger between The Colonial BancGroup, Inc. and South Florida Banking Corp., dated as of September 4, 1997, included as Appendix A to the Prospectus in Registrant's Registration Statement on Form S-4 (File No. 333-39283), and incorporated herein by reference. 10.11 -- Agreement and Plan of Merger between The Colonial BancGroup, Inc. and United American Holding Corporation, dated as of September 8, 1997, included as Appendix A to the Prospectus in Registrant's Registration Statement on Form S-4 (File No. 333-39277), and incorporated herein by reference. 10.12 -- Agreement and Plan of Merger between The Colonial BancGroup, Inc. and First Central Bank, dated as of September 9, 1997, included as Appendix A to the Prospectus in Registrant's Registration Statement on Form S-4 (File No. 333-39267), and incorporated herein by reference. Exhibit 11 -- Statement Regarding Computation of Earnings Per Share. Exhibit 12 -- Statement Regarding Computation of Ratio of Earnings to Fixed Charges. Exhibit 13 -- Portions of the 1997 Annual Report to Security Holders. (Such annual report, except for those portions expressly incorporated by reference in this report, is furnished solely for the information of the Commission and is not deemed to be filed as part of this report). Exhibit 21 -- List of subsidiaries of the Registrant. Exhibit 23 -- Consents of experts and counsel: 23.1 -- Consent of Coopers & Lybrand L.L.P. Exhibit 24 -- Power of Attorney. Exhibit 27 -- Financial Data Schedule (for SEC use only).
(b)(1) Registrant's Current Reports on Form 8-K dated October 30, 1997 and November 17, 1997, and incorporated herein by reference. 11 13 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Montgomery, Alabama, on the 30 day of March, 1998. THE COLONIAL BANCGROUP, INC. By: /s/ ROBERT E. LOWDER ------------------------------------ Robert E. Lowder Its Chairman of the Board of Directors and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ ROBERT E. LOWDER Chairman of the Board of ** - ------------------------------------------------ Directors and Chief Robert E. Lowder Executive Officer /s/ W. FLAKE OAKLEY, IV Chief Financial Officer, ** - ------------------------------------------------ Secretary and Treasurer W. Flake Oakley, IV (Principal Financial Officer and Principal Accounting Officer) * Director ** - ------------------------------------------------ Lewis Beville * Director ** - ------------------------------------------------ Young J. Boozer * Director ** - ------------------------------------------------ William Britton * Director ** - ------------------------------------------------ Jerry J. Chesser * Director ** - ------------------------------------------------ Augustus K. Clements, III * Director ** - ------------------------------------------------ Robert C. Craft * Director ** - ------------------------------------------------ Patrick F. Dye * Director ** - ------------------------------------------------ Clinton O. Holdbrooks * Director ** - ------------------------------------------------ D. B. Jones * Director ** - ------------------------------------------------ Harold D. King * Director ** - ------------------------------------------------ John Ed Mathison
12 14
SIGNATURE TITLE DATE --------- ----- ---- * Director ** - ------------------------------------------------ Milton E. McGregor * Director ** - ------------------------------------------------ John C. H. Miller, Jr. * Director ** - ------------------------------------------------ Joe D. Mussafer * Director ** - ------------------------------------------------ William E. Powell * Director ** - ------------------------------------------------ J. Donald Prewitt * Director ** - ------------------------------------------------ Jack H. Rainer * Director ** - ------------------------------------------------ Jimmy Rane * Director ** - ------------------------------------------------ Frances E. Roper * Director ** - ------------------------------------------------ Simuel Sippial * Director ** - ------------------------------------------------ Ed V. Welch
* The undersigned, acting pursuant to a power of attorney, has signed this Annual Report on Form 10-K for and on behalf of the persons indicated above as such persons' true and lawful attorney-in-fact and in their names, places and stead, in the capacities indicated above and on the date indicated below. /s/ W. FLAKE OAKLEY, IV - -------------------------------------- W. Flake Oakley, IV Attorney-in-Fact ** Dated: March 30, 1998 13 15 EXHIBIT INDEX Exhibit 3 -- Articles of Incorporation and Bylaws: 3.1 -- Restated Certificate of Incorporation of the Registrant, filed as Exhibit 4.1 to the Registrant's Current Report on Form 8-K, dated February 21, 1995, and incorporated herein by reference.............................................. 3.2 -- Amendment of Registrant's Restated Certificate of Incorporation, dated April 16, 1997, filed as Exhibit 4(A)(2) to the Registrant's Registration Statement on Form S-4 (File No. 333-26217), effective May 9, 1997, and incorporated herein by reference. 3.3 -- Bylaws of the Registrant, as amended, filed as Exhibit 4.2 to the Registrant's Current Report on Form 8-K, dated February 21, 1995, and incorporated herein by reference... Exhibit 4 -- Instruments defining the rights of security holders: 4.1 -- Article 4 of the Restated Certificate of Incorporation of the Registrant filed as Exhibit 4.1 to the Registrant's Current Report on Form 8-K, dated February 21, 1995, and incorporated herein by reference.......................... 4.2 -- Amendment to Article 4 of Registrant's Restated Certificate of Incorporation, dated April 16, 1997, filed as Exhibit 4(A)(2) to the Registrant's Registration Statement on Form S-4 (File No. 333-26217), effective May 9, 1997, and incorporated herein by reference. 4.3 -- Article II of the Bylaws of the Registrant filed as Exhibit 4.2 to the Registrant's Current Report on Form 8-K, dated February 21, 1995, and incorporated herein by reference... 4.4 -- Dividend Reinvestment and Class A Common Stock Purchase Plan of the Registrant dated January 15, 1986, and Amendment No. 1 thereto dated as of June 10, 1986, filed as Exhibit 4(C) to the Registrant's Registration Statement on Form S-4 (File No. 33-07015), effective July 15, 1986, and incorporated herein by reference................................................. 4.5 -- All instruments defining the rights of holders of long-term debt of the Corporation and its subsidiaries. Not filed pursuant to clause 4(iii) of Item 601(b) of Regulation S-K; to be furnished upon request of the Commission....... Exhibit 10 -- Material Contracts: 10.1 -- Second Amendment and Restatement of 1982 Incentive Stock Plan of the Registrant, filed as Exhibit 4-1 to the Registrant's Registration Statement on Form S-8 (File No. 33-41036), effective June 4, 1991, and incorporated herein by reference.............................................. 10.2 -- Second Amendment and Restatement to 1982 Nonqualified Stock Option Plan of the Registrant filed as Exhibit 4-2 to the Registrant's Registration Statement on Form S-8 (File No. 33-41036), effective June 4, 1991, and incorporated herein by reference.............................................. 10.3 -- 1992 Incentive Stock Option Plan of the Registrant, filed as Exhibit 4-1 to Registrant's Registration Statement on Form S-8 (File No. 33-47770), effective May 8, 1992, and incorporated herein by reference.......................... 10.4 -- 1992 Nonqualified Stock Option Plan of the Registrant, filed as Exhibit 4-2 to Registrant's Registration Statement on Form S-8 (File No. 33-47770), effective May 8, 1992, and incorporated herein by reference..........................
14 16 10.5 -- Amended and Restated Loan Agreement by and between the Registrant and SunTrust Bank, Central Florida, National Association, dated December 20, 1996, filed as Exhibit 10(B)(2) to the Registrant's Registration Statement on Form S-4 (File No. 333-20291), and incorporated herein by reference................................................. 10.6 -- The Colonial BancGroup, Inc. First Amended and Restated Restricted Stock Plan for Directors, as amended, included as Exhibit 10(C)(1) to the Registrant's Registration Statement as Form S-4 (File No. 33-52952), and incorporated herein by reference.......................... 10.7 -- The Colonial BancGroup, Inc. Stock Bonus and Retention Plan, included as Exhibit 10(C)(2) to the Registrant's Registration Statement as Form S-4 (File No. 33-52952), and incorporated herein by reference...................... 10.8 -- Indenture dated as of January 29, 1997 between The Colonial BancGroup, Inc. and Wilmington Trust Company, as Debenture Trustee dated as of, included as Exhibit 4(A) to Registrant's Registration Statement on Form S-4 (File No. 333-22135), and incorporated herein by reference. 10.9 -- Agreement and Plan of Merger between The Colonial BancGroup, Inc. and ASB Bancshares, Inc., dated as of August 28, 1997, included as Appendix A to the Prospectus in Registrant's Registration Statement on Form S-4 (File No. 333-39271), and incorporated herein by reference. 10.10 -- Agreement and Plan of Merger between The Colonial BancGroup, Inc. and South Florida Banking Corp., dated as of September 4, 1997, included as Appendix A to the Prospectus in Registrant's Registration Statement on Form S-4 (File No. 333-39283), and incorporated herein by reference. 10.11 -- Agreement and Plan of Merger between The Colonial BancGroup, Inc. and United American Holding Corporation, dated as of September 8, 1997, included as Appendix A to the Prospectus in Registrant's Registration Statement on Form S-4 (File No. 333-39277), and incorporated herein by reference. 10.12 -- Agreement and Plan of Merger between The Colonial BancGroup, Inc. and First Central Bank, dated as of September 9, 1997, included as Appendix A to the Prospectus in Registrant's Registration Statement on Form S-4 (File No. 333-39267), and incorporated herein by reference. Exhibit 11 -- Statement Regarding Computation of Earnings Per Share....... Exhibit 12 -- Statement Regarding Computation of Ratio of Earnings to Fixed Charges............................................. Exhibit 13 -- Portions of the 1997 Annual Report to Security Holders. (Such annual report, except for those portions expressly incorporated by reference in this report, is furnished solely for the information of the Commission and is not deemed to be filed as part of this report.)............... Exhibit 21 -- List of subsidiaries of the Registrant...................... Exhibit 23 -- Consents of experts and counsel: 23.1 -- Consent of Coopers & Lybrand L.L.P.......................... Exhibit 24 -- Power of Attorney........................................... Exhibit 27 -- Financial Data Schedule (for SEC use only)..................
(b)(1) Registrant's Current Reports on Form 8-K dated October 30, 1997 and November 17, 1997 and incorporated herein by reference. 15 17 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. EXHIBITS TO FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 COMMISSION FILE NO. 0-07945 THE COLONIAL BANCGROUP, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) EX-11 2 STATEMENT REGARDING COMPUTATION OF EARNINGS 1 EXHIBIT 11 THE COLONIAL BANCGROUP, INC. COMPUTATION OF EARNINGS PER SHARE
1997 1996 1995 ---------- ---------- ---------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) A. Net income............................................ $77,191 $50,214 $46,465 B. Interest expense on convertible debentures............ 470 689 1,660 C. Tax effect of (B) above............................... 175 244 585 D. Average basic shares outstanding...................... 42,034 38,615 35,696 E. Dilutive potential common shares(1)................... 1,402 1,770 3,725 EARNINGS PER COMMON SHARE: Net income: Basic (A/D)............................................ $ 1.84 $ 1.30 $ 1.30 Diluted (A+B-C)/(D+E).................................. $ 1.78 $ 1.25 $ 1.21
- --------------- (1) Includes the effect of the average contingent shares from BancGroup's issue of convertible subordinated debentures; computed by dividing the outstanding balance of the convertible debentures by the conversion price. Also includes the effect of stock options. EX-12 3 STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS 1 EXHIBIT 12 THE COLONIAL BANCGROUP, INC. RATIO OF EARNINGS TO FIXED CHARGES
1997 1996 1995 1994 1993 -------- -------- -------- -------- -------- (IN THOUSANDS) A. Income before income taxes, extraordinary items and the cumulative effect of a change in accounting for income taxes.......... $123,101 $ 77,518 $ 72,230 $ 51,737 $ 36,636 Fixed charges: Interest expense....................... 249,488 205,843 170,483 105,797 81,008 1/3 Rent expense...................... 3,658 3,136 2,816 2,366 1,833 -------- -------- -------- -------- -------- B. Total fixed charges.................... 253,146 208,979 173,299 108,163 82,841 -------- -------- -------- -------- -------- C. Sum of A and B......................... $376,247 $286,497 $245,529 $159,900 $119,477 ======== ======== ======== ======== ======== Ratio of earnings to fixed charges (C/B).................................. 1.49 1.37 1.42 1.48 1.44
EX-13 4 PORTIONS OF THE 1997 ANNUAL REPORT 1 EXHIBIT 13 PORTIONS OF THE 1997 ANNUAL REPORT TO SECURITY HOLDERS (SUCH ANNUAL REPORT, EXCEPT FOR THOSE PORTIONS EXPRESSLY INCORPORATED BY REFERENCE IN THIS REPORT, IS FURNISHED SOLELY FOR THE INFORMATION OF THE COMMISSION AND IS NOT DEEMED TO BE FILED AS PART OF THIS REPORT.) 2 EXHIBIT 13 Colonial BancGroup, Inc. SELECTED FINANCIAL DATA97 For the years ended December 31, 1997, 1996, 1995, 1994 and 1993 (In thousands, except per share amounts)
1997 1996 1995 1994 1993 - ---------------------------------------------------------------------------------------------------- STATEMENT OF INCOME Interest income $497,987 $408,532 $341,826 $255,758 $204,322 Interest expense 249,488 205,843 170,483 105,797 81,008 - ---------------------------------------------------------------------------------------------------- Net interest income 248,499 202,689 171,343 149,961 123,314 Provision for possible loan losses 13,026 12,545 8,986 8,254 11,767 - ---------------------------------------------------------------------------------------------------- Net interest income after provision for possible loan losses 235,473 190,144 162,357 141,707 111,547 Noninterest income 87,759 70,888 60,527 54,149 50,990 Noninterest expense 194,919 167,131 148,916 142,771 124,941 SAIF special assessment(1) -- 4,465 -- -- -- Acquisition expense(2) 5,212 11,918 1,738 1,348 960 - ---------------------------------------------------------------------------------------------------- Income before income taxes 123,101 77,518 72,230 51,737 36,636 Applicable income taxes 45,910 27,304 25,765 17,243 11,249 - ---------------------------------------------------------------------------------------------------- Income before extraordinary items and the cumulative effect of a change in accounting for income taxes 77,191 50,214 46,465 34,494 25,387 Extraordinary items, net of income taxes -- -- -- -- (396) Cumulative effect of a change in accounting for income taxes -- -- -- -- 3,890 - ---------------------------------------------------------------------------------------------------- Net income $ 77,191 $ 50,214 $ 46,465 $ 34,494 $ 28,881 ==================================================================================================== Income excluding SAIF special assessment and acquisition expense(1)(2)(3) $ 81,361 $ 62,651 $ 47,855 $ 35,572 $ 26,155 ==================================================================================================== EARNINGS PER SHARE Income excluding SAIF special assessment and acquisition expense:(1)(2)(3) Basic $ 1.94 $ 1.62 $ 1.34 $ 1.05 $ 0.88 Diluted $ 1.88 $ 1.55 $ 1.24 $ 0.98 $ 0.85 Income before extraordinary items and the cumulative effect of a change in accounting for income taxes: Basic $ 1.84 $ 1.30 $ 1.30 $ 1.02 $ 0.86 Diluted $ 1.78 $ 1.25 $ 1.21 $ 0.95 $ 0.82 Net income: Basic $ 1.84 $ 1.30 $ 1.30 $ 1.02 $ 0.97 Diluted $ 1.78 $ 1.25 $ 1.21 $ 0.95 $ 0.93 Average shares outstanding: Basic 42,034 38,615 35,696 33,907 29,644 Diluted 43,436 40,385 39,421 37,441 32,806 Cash dividends per common share: Common $ 0.60 $ 0.54 $ 0.3375 -- -- Class A -- -- $ 0.1125 $ 0.40 $ 0.355 Class B -- -- $ 0.0625 $ 0.20 $ 0.155 ====================================================================================================
(1)Legislation approving a one-time special assessment to recapitalize the Savings Association Insurance Fund ("SAIF") resulted in $4,465,000 in expense before income taxes and $2,903,000 net of applicable income taxes in 1996. (2)Acquisition expenses reflect costs and related restructuring expense of business combinations discussed in Note 2 to the Consolidated Financial Statements. (3)1993 also excludes the effect of extraordinary items and the cumulative effect of a change in accounting for income taxes. THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 22 3
For the years ended December 31, 1997, 1996, 1995, 1994 and 1993 (In thousands, except per share amounts) 1997 1996 1995 1994 1993 - -------------------------------------------------------------------------------------------------------------------------------- STATEMENT OF CONDITION DATA At year-end: Total assets $6,850,828 $5,669,761 $4,960,165 $3,865,936 $3,728,270 Loans, net of unearned income 5,176,926 4,216,178 3,645,727 2,736,041 2,289,233 Mortgage loans held for sale 225,331 157,966 112,203 61,556 368,515 Deposits 5,255,830 4,299,721 3,869,012 3,067,500 2,990,190 Long-term debt 90,252 39,092 47,688 86,662 57,397 Shareholders' equity 494,254 402,708 352,731 275,319 256,866 Average balances: Total assets 6,368,047 5,288,444 4,373,227 3,708,350 3,015,787 Interest-earning assets 5,826,333 4,836,969 3,991,723 3,349,026 2,681,428 Loans, net of unearned income 4,803,874 3,932,282 3,123,407 2,477,768 1,813,569 Mortgage loans held for sale 149,309 135,135 98,785 135,046 248,502 Deposit 4,971,043 4,065,341 3,451,748 2,994,868 2,407,015 Shareholders' equity 459,666 385,881 308,532 269,353 200,217 Book value per share at year-end $ 11.62 $ 10.29 $ 9.43 $ 7.93 $ 7.69 Tangible book value per share at year-end $ 10.04 $ 9.53 $ 8.62 $ 7.35 $ 7.18 ================================================================================================================================ SELECTED RATIOS Income excluding SAIF special assessment and acquisition expense to:(1)(2)(3) Average assets 1.28% 1.18% 1.09% 0.96% 0.87% Average shareholders' equity 17.69 16.24 15.51 13.21 13.06 Income before extraordinary items and the cumulative effect of a change in accounting for income taxes to: Average assets 1.21 0.95 1.06 0.93 0.84 Average shareholders' equity 16.79 13.01 15.06 12.81 12.68 Net income to: Average assets 1.21 0.95 1.06 0.93 0.96 Average shareholders' equity 16.79 13.01 15.06 12.81 14.42 Efficiency ratio excluding SAIF and acquisition expense(1)(2) 57.56 60.52 63.64 69.19 71.31 Dividend payout ratio 32.61 41.54 34.62 39.22 36.60 Average equity to average total assets 7.22 7.30 7.06 7.26 6.64 Total nonperforming assets to net loans, other real estate and repossessions 0.71 0.81 0.85 1.28 1.79 Net charge-offs to average loans 0.23 0.17 0.18 0.12 0.34 Allowance for possible loan losses to total loans (net of unearned income) 1.20 1.27 1.29 1.55 1.61 Allowance for possible loan losses to nonperforming loans(4) 255% 223% 258% 238% 215% ================================================================================================================================
(1)Legislation approving a one-time special assessment to recapitalize the Savings Association Insurance Fund ("SAIF") resulted in $4,465,000 in expense before income taxes and $2,903,000 net of applicable income taxes in 1996. (2)Acquisition expenses reflect costs and related restructuring expense of business combinations discussed in Note 2 to the Consolidated Financial Statements. (3)1993 also excludes the effect of extraordinary items and the cumulative effect of a change in accounting for income taxes. (4)Nonperforming loans and nonperforming assets are shown as defined in Management's Discussion and Analysis of Financial Condition and Results of Operations -- Nonperforming Assets on page 40. THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 23 4 1997-1996 SELECTED QUARTERLY FINANCIAL DATA 97
(In thousands, except per share amounts) 1997 1996 ---------------------------------------- --------------------------------------- DEC. 31 SEPT. 30 JUNE 30 MARCH 31 DEC. 31 SEPT. 30 JUNE 30 MARCH 31 - ------------------------------------------------------------------------------------------------------------------- Interest income $131,168 $127,540 $122,014 $117,265 $107,496 $104,844 $100,371 $95,821 Interest expense 65,358 63,831 61,178 59,121 54,259 52,764 50,155 48,665 - ------------------------------------------------------------------------------------------------------------------- Net interest income 65,810 63,709 60,836 58,144 53,237 52,080 50,216 47,156 Provision for loan losses 4,193 2,578 3,367 2,888 6,252 2,669 1,851 1,773 - ------------------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses 61,617 61,131 57,469 55,256 46,985 49,411 48,365 45,383 - ------------------------------------------------------------------------------------------------------------------- Net income $ 20,488 $ 20,230 $ 18,589 $ 17,884 $ 6,405 $ 13,635 $ 16,073 $14,101 - ------------------------------------------------------------------------------------------------------------------- Income excluding SAIF special assessment and acquisition expense(1)(2) $ 21,858 $ 20,826 $ 20,187 $ 18,490 $ 14,651 $ 17,040 $ 16,429 $14,531 - ------------------------------------------------------------------------------------------------------------------- EARNINGS PER SHARE: Income excluding SAIF special assessment and acquisition expense:(1)(2) Basic $ 0.51 $ 0.49 $ 0.49 $ 0.45 $ 0.38 $ 0.44 $ 0.42 $ 0.38 Diluted $ 0.50 $ 0.48 $ 0.47 $ 0.43 $ 0.36 $ 0.42 $ 0.41 $ 0.36 Net income: Basic $ 0.48 $ 0.48 $ 0.45 $ 0.43 $ 0.16 $ 0.35 $ 0.42 $ 0.37 Diluted $ 0.47 $ 0.47 $ 0.43 $ 0.41 $ 0.16 $ 0.34 $ 0.40 $ 0.35 ===================================================================================================================
(1)Legislation approving a one-time special assessment to recapitalize the Savings Association Insurance Fund ("SAIF") resulted in $4,465,000 in expense before income taxes and $2,903,000 net of applicable income taxes in 1996. (2)Acquisition expenses reflect costs and related restructuring expense of business combinations discussed in Note 2 to the Consolidated Financial Statements. THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 24 5 Financial Condition and Results of Operations MANAGEMENT'S DISCUSSION AND ANALYSIS97 INTRODUCTION Management's Discussion and Analysis of Financial Condition and Results of Operations is presented on the following pages. The principal purpose of this review is to provide the user of the attached financial statements and accompanying footnotes with a detailed analysis of the financial results of The Colonial BancGroup, Inc. and subsidiaries ("BancGroup"). Among other things, this discussion provides commentary on BancGroup's history, operating philosophies, the components of net interest margin and balance sheet strength as measured by the quality of assets, the composition of the loan portfolio and capital adequacy. BACKGROUND BancGroup (or the "Company") was established in 1981 with one bank and $166 million in assets. Through 46 business combinations BancGroup has grown to a $6.9 billion multistate bank holding company with substantial centralized operations, local lending autonomy with centralized loan review and a strong commercial lending function. During 1995, BancGroup expanded into the Atlanta metropolitan market through the acquisition of Mt. Vernon Financial Corp. In 1996, the Company continued its expansion in the Atlanta area with the merger of Commercial Bancorp of Georgia, Inc. and moved into Florida with the merger of Orlando based Southern Banking Corporation. In 1997, expansion continued in central Florida with the mergers of Tomoka Bancorp, Inc. in the Daytona area, First Family Financial Corporation in Eutis and First Commerce Banks of Florida, Inc. in Winter Haven. BancGroup entered four new banking markets during 1997 which include South Florida (Miami area), Southwest Florida (Ft. Myers area), Bay Area (Tampa) and North Georgia (Dalton). The mergers of Jefferson Bancorp, Inc. and Dadeland BancShares, Inc. in Miami and Great Southern Bancorp in Palm Beach established the South Florida region. The merger with First Independence Bank of Florida in Ft. Myers established the Company's presence in the Southwest Florida market. The merger with Fort Brooke Bancorporation in Tampa created BancGroup's Bay Area region. Expansion into North Georgia was established with the merger of D/W Bancshares, Inc. in Dalton. In 1998, the Company increased its presence in the Central, Bay Area and Southwest Florida markets with the mergers of United American Holding Corporation in Orlando, First Central Bank in St. Petersburg and South Florida Banking Corp. in Bonita Springs, respectively. BancGroup also increased its market share in East Central Alabama with the merger of ASB Bancshares, Inc. Upon consummation of the 1998 mergers, BancGroup's assets increased to approximately $7.6 billion. BancGroup currently has a pending merger with Commercial Bank of Nevada in Las Vegas, Nevada. BancGroup's expansion in Georgia, Florida and now in Nevada reflects a corporate goal to establish its community banking concept in the higher growth market areas not only in the Southeast, but other areas of the country as well. More importantly, BancGroup's operating earnings (income before extraordinary items, accounting changes, the one-time special assessment to recapitalize the Savings Association Insurance Fund ("SAIF") and acquisition expenses) per share have increased an average of 21.9% per year since 1993 and in 1997 the Company achieved a 17.69% return on average equity and a 1.28% return on average assets (based on operating earnings). BancGroup's performance goals are: 1) an annual earnings per share growth rate in excess of 10%, 2) a 17.5% return on equity, 3) a 1.45% return on assets and 4) a consistently increasing dividend. The strategies employed to achieve these results are outlined below. They represent the foundation upon which BancGroup operates and the basis for achieving the Company's goals. - - COMMUNITY BANK: BancGroup operates as a community bank allowing autonomy in lending decisions and customer relationships. This operating philosophy has been important in making acquisitions, retaining a skilled and highly motivated local management team and developing a strong customer base, particularly with respect to lending relationships. - - CONTINUITY AND CONSISTENCY OF MANAGEMENT: Robert E. Lowder has been Chairman and CEO of BancGroup since inception and Chairman and CEO of Colonial Mortgage Company ("CMC") for 27 years. BancGroup's President, P.L. (Mac) McLeod, has been with BancGroup for 16 years, previously serving as President of the Montgomery Region bank. CMC's President Ronnie Wynn, has been in that position for 21 years and is a former president of the Mortgage Bankers Association of America. - - COMMERCIAL LENDING: Commercial lending primarily through groups located in the Birmingham, Huntsville, Montgomery and Anniston, Alabama as well as the Atlanta, Georgia and Orlando, Miami and Tampa, Florida metropolitan centers has been a major factor in the Company's growth. Commercial real estate and other commercial loans increased 23% and 14% in 1997 and 1996, respectively. BancGroup has been very successful in competing for these loans against other larger financial institutions, due primarily to the Company's local lending strategy and management continuity. - - CONSUMER REAL ESTATE: Since 1993, BancGroup has focused on residential real estate lending as a means to increase consumer lending, broaden the Company's customer base and create a significant stream of fee income. In furtherance of this goal, BancGroup acquired CMC in February 1995, one of THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 25 6 the 50 largest mortgage loan servicers in the country. BancGroup has increased residential mortgage loans 162% from $837 million at December 31, 1993 to $2.2 billion at December 31, 1997. The portfolio of mortgage loans has a relatively low credit risk and provides a source of liquidity by serving as collateral for Federal Home Loan Bank borrowings. CMC's $12.9 billion portfolio of loans serviced for others provides a steady source of noninterest income. - - GROWTH MARKET EXPANSION: The Company's strategy has concentrated on expanding into growth markets by merging with banks that have strong local management. BancGroup has been most successful in Florida, where over the twenty-month period, from July 1996 through February 1998, twelve acquisitions have been completed creating four regional banks in major growth markets of Florida. The Central Florida Region now consists of $880 million in assets and 33 branches in Orlando, Daytona and the Lakeland/ Winter Haven market areas. The South Florida Region consists of $742 million in assets and 19 branches from Miami to West Palm Beach. The Bay Area Region consists of $271 million in assets with branches in Tampa and St. Petersburg. The Southwest Florida Region consists of $320 million in assets and 15 branches in Naples, Bonita Springs, and Ft. Myers. The management teams in each of these areas, along with the significant physical presence in each area, should provide a foundation for significant internal growth as well as an efficient platform for future expansion. In addition to the Florida expansion, during 1997 BancGroup added to its Atlanta, Georgia locations with the acquisition of $139 million in assets and three branches in Dalton and established a new loan production office in Chattanooga, TN. BancGroup increased its Alabama market share with the March 1997 acquisition of a bank with $55 million in assets and six branches between Mobile and Montgomery and the February 1998 acquisition of a $159 million asset bank with nine branches between Birmingham and Chattanooga. With the announcement of the pending merger of Commercial Bank of Nevada in Las Vegas, Nevada, BancGroup has made its first step into growth markets outside the Southeast. The Las Vegas market represents one of the fastest growing markets in the country and Nevada is ranked first in the country with respect to projected population growth over the next twenty years. For a number of years Colonial Mortgage Company has operated on a national basis focusing on the highest growth markets in the country. This acquisition represents the initiation of BancGroup's strategy to parallel the mortgage company's focus and provide its banking services in some of those same markets. - - COST CONTROL: An operational and organizational infrastructure established in prior years has allowed the Company to grow significantly and improve the efficiency ratio from 71.31% in 1993 to 57.56% in 1997. The operating structure is built around centralized back-shop operations in areas that do not have direct customer contact. As noted above, this structure has served the Company well over the past few years and should allow for continued growth at low marginal cost. This same structure should also allow for additional efficiencies in the recently acquired institutions which are not reflected in the operating costs presented. - - CAPITAL UTILIZATION: Management's goal is to provide a greater than 17.5% return on capital while effectively utilizing internally created capital and exceeding regulatory capital requirements. BancGroup has an asset generating capability that can effectively utilize the capital generated. This capability is most evident in 1997 by BancGroup's acquisition activities and its 9.75% internal growth in loans. CMC provides asset generating sources for mortgage loans, as noted, and mortgage servicing rights. The book value of CMC's mortgage servicing rights increased by 43.44% in 1997 through the net addition of $2.2 billion to its servicing portfolio. - - ASSET QUALITY: Maintaining high asset quality is at the forefront of the Company's strategy to allow for consistent earnings growth. BancGroup's asset quality is demonstrated by its charge-off history and nonperforming asset levels, which compare favorably to its peer group. Nonperforming assets as a percentage of loans and other real estate was reduced to .71% at December 31, 1997, its lowest level in five years, primarily through sales of other real estate. Net charge-offs over the past five years have consistently compared favorably with the Company's peer group and were only .23% of average loans in 1997 and .17% in 1996. - - PRODUCT AND SERVICE ENHANCEMENTS: In 1997, BancGroup continued its commitment to expand its services through increased efforts in private banking, additional products, asset management through trust services and investment sales products and services. With BancGroup's expansion into the Florida market, an international banking unit is being established to provide and service the needs of customers involved in international activities. In 1995 and 1996 steps were taken to provide better customer access to products and services. As part of this effort the Company 1) issued the Colonial Check Card, a debit card allowing customers to make purchases with funds from their checking account, 2) established telephone banking, giving customers the capability to pay bills and transfer funds by phone, and 3) created computer banking services allowing customers to conduct banking business from their home computers. Customers needs are constantly changing, and BancGroup will continue to investigate methods of improving customer service through new services, product enhancements and technological advances. THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 26 7 - - STOCK SPLIT: On January 15, 1997, BancGroup's Board of Directors declared a two-for-one stock split which was effected in the form of a 100 percent stock dividend distributed on February 11, 1997. The stated par value of each share was not changed from $2.50. Accordingly, all prior period information has been restated to reflect the reclassification from additional paid in capital to common stock. Additionally, all share and per share amounts in earnings per share calculations have been restated to retroactively reflect the stock split. Obviously the Company cannot guarantee its success in implementing the initiatives or reaching the goals set out previously. The following analysis of financial condition and results of operations provide details with respect to this summary material and demonstrates trends concerning the initiatives taken through 1997. BUSINESS COMBINATIONS A principal part of BancGroup's strategy is to merge other financial institutions into BancGroup in order to increase the Company's market share in existing markets, expand into other growth markets, more efficiently absorb the Company's overhead and add profitable new lines of business. BancGroup recently completed the following business combinations with other financial institutions. The balances reflected are as of the date of consummation. (DOLLARS IN THOUSANDS)
ACCOUNTING DATE BANCGROUP TOTAL TOTAL TOTAL FINANCIAL INSTITUTIONS TREATMENT CONSUMMATED SHARES ASSETS LOANS DEPOSITS - ------------------------------------------------------------------------------------------------------------ 1995 Colonial Mortgage Company (AL) Pooling 02/17/95 4,545,454 $ 71,000 $ 1,675 $ -- Brundidge Banking Company (AL) Purchase 03/31/95 532,868 56,609 1,577 46,044 Mt. Vernon Financial Corp. (GA) Purchase 10/20/95 1,043,440 217,967 192,167 156,356 Farmers & Merchants Bank (AL) Purchase 11/03/95 513,686 56,050 25,342 45,448 - ------------------------------------------------------------------------------------------------------------ 1996* Commercial Bancorp of Georgia, Inc. (GA) Pooling 07/03/96 2,306,460 232,555 145,429 207,641 Southern Banking Corporation (FL) Pooling 07/03/96 2,858,494 232,461 160,864 205,602 Dothan Federal Savings Bank (AL) Purchase 07/08/96 154,690 48,366 36,497 39,931 - ------------------------------------------------------------------------------------------------------------ 1997 Jefferson Bancorp, Inc. (FL) Pooling 01/03/97 3,854,952 472,732 322,857 405,836 Tomoka Bancorp, Inc. (FL) Pooling 01/03/97 661,992 76,700 51,600 68,200 First Family Financial Corp. (FL) Purchase 01/09/97 330,564 167,300 117,500 156,700 D/W Bankshares, Inc. (GA) Pooling 01/31/97 1,016,548 138,686 71,317 124,429 Shamrock Holdings, Inc. (AL) Purchase 03/05/97 -- 54,500 19,300 46,400 Fort Brooke Bancorporation (FL) Pooling 04/22/97 1,599,973 208,800 141,500 185,800 Great Southern Bancorp (FL) Pooling 07/01/97 927,811 121,009 98,100 106,673 First Commerce Banks of Florida, Inc. (FL) Purchase 07/01/97 685,695 97,093 64,472 88,302 Dadeland BancShares, Inc. (FL) Purchase 09/15/97 -- 169,946 103,199 145,491 First Independence Bank of Florida (FL) Pooling 10/01/97 503,932 65,048 50,699 58,283 - ------------------------------------------------------------------------------------------------------------
* On April 19, 1996, BancGroup purchased certain assets totaling $31,428,000 and assumed certain liabilities, primarily deposits, totaling $30,994,000 of the Enterprise, Alabama branch of First Federal Bank. In addition to the combinations shown above, BancGroup has closed or has plans to close the following combinations after December 31,1997. The balances reflected are as of December 31, 1997. The following business combinations have not been reflected in the financial statements at December 31, 1997. (Dollars in thousands)
ACCOUNTING DATE BANCGROUP TOTAL TOTAL TOTAL FINANCIAL INSTITUTIONS TREATMENT CONSUMMATED SHARES ASSETS LOANS DEPOSITS - ------------------------------------------------------------------------------------------------------------ United American Holding Corp. (FL) Pooling 02/02/98 2,113,206 $275,263 $197,623 $236,773 ASB Bancshares, Inc. (AL) Purchase 02/05/98 467,257 158,656 109,382 133,322 First Central Bank (FL) Pooling 02/11/98 688,684 62,897 40,451 52,048 South Florida Banking Corp. (FL) Pooling 02/12/98 1,932,229 255,769 172,992 226,999 Commercial Bank of Nevada (NV) Pooling Pending 842,157 120,108 84,751 108,661
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 27 8 The combination with CMC in 1995 was accounted for using a method of accounting similar to a pooling of interests. The 1996 combinations with Southern and Commercial and the 1997 combinations with Jefferson, D/W Bankshares and Fort Brooke were accounted for using the pooling-of-interests method. Accordingly, all financial statement amounts have been restated to reflect the financial condition and results of operations as if the combinations had occurred at the beginning of the earliest period presented. The 1997 combinations with Tomoka, Great Southern and First Independence were accounted for using the pooling-of-interests method; however, due to immateriality, the prior year financial statements were not restated. The remaining business combinations were accounted for as purchases, and the operations and income of the combined institutions are included in the income of BancGroup from the date of purchase. Each of the combined institutions that were accounted for as purchases was merged into BancGroup or one of its subsidiaries as of the listed dates, and the income and expenses have not been separately accounted for since the respective mergers. For this reason and due to the fact that significant changes have been made to the cost structure of each combined institution, a separate determination of the impact after combination of earnings of BancGroup for 1996 and 1997 cannot reasonably be determined. The combinations have had an impact on the comparisons of operating results for 1996 and 1997 with prior years. Where such information is determinable it has been identified and discussed in the discussion of results of operations and financial condition that follows. COLONIAL MORTGAGE COMPANY On February 17, 1995, BancGroup completed the acquisition of CMC. This acquisition represents a major step in achieving several BancGroup strategic goals. A principal initiative of BancGroup for the past several years has been to increase fee income through the establishment of additional lines of business that provide natural extensions of existing products or services. CMC in this regard provides an excellent fit for the following reasons: FEE INCOME At December 31, 1997, CMC provided servicing for approximately 157,000 customers with a total outstanding balance of $12.9 billion. The servicing revenues from this portfolio plus other fee income from CMC provided approximately 52% and 51% of BancGroup's noninterest income for 1997 and 1996. CONSUMER REAL ESTATE LENDING Through its wholesale and retail offices, CMC originated over $4.2 billion in residential real estate loans from 1995 through 1997. These loans have primarily been fixed rate loans sold into the secondary markets. However, since the latter part of 1994 Colonial Bank has been acquiring adjustable rate mortgage (ARM) loans originated by CMC. This program provides CMC additional loan products for its branch network. In addition, CMC provides the Bank with fixed rate loan products for its customers. GROWTH MARKET EXPANSION CMC currently originates residential mortgages in 34 states through 4 regional offices and services 157,000 customers located in 44 states and the District of Columbia. These locations provide BancGroup with a broader market base to solicit business and include areas which currently have greater growth rates than BancGroup's existing branch locations. These areas include the greater Seattle area, Las Vegas, Phoenix, Dallas/Ft. Worth, Cincinnati and Greensboro, N.C. CAPITAL UTILIZATION BancGroup provides a capital base for the expansion of CMC's low cost servicing operation through bulk purchases of servicing. During 1996 and 1997, CMC acquired a total of $1.8 billion in bulk servicing. In addition, CMC provides another source of loans for the Bank's portfolio including ARM loans and equity lines. CUSTODIAL DEPOSITS CMC maintains custodial accounts for its loan customers for the payment of taxes and insurance as well as collection of principal and interest. The balances in these accounts averaged approximately $187 million and $157 million in 1997 and 1996, respectively. These balances represent 4.3% of the total increase of 20.9% in average noninterest bearing demand deposits from 1996 to 1997. These balances have a positive impact on BancGroup's net interest margin by providing a noninterest bearing source of funds. CROSS-SELLING OF CUSTOMERS BancGroup has established a personal banking unit to solicit other business from CMC customers, such as equity lines and deposits. In addition, BancGroup plans to expand other customer relationships through establishment of deposit relationships with CMC customers, acceptance of CMC payments in branches, and establishing a linkage between construction and permanent lending. THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 28 9 REVIEW OF RESULTS OF OPERATIONS OVERVIEW BancGroup is involved in two primary lines of business: commercial banking and mortgage banking, through its wholly owned subsidiaries Colonial Bank and Colonial Mortgage Company ("CMC"). The following summary of BancGroup's results of operations discusses the related impact of each line of business to the earnings of the Company. LINE OF BUSINESS RESULTS (Dollars in thousands)
COLONIAL COLONIAL CONSOLIDATED YEAR ENDED DECEMBER 31, 1997 BANK MORTGAGE OTHER(1) BANCGROUP - --------------------------------------------------------------------------------------- Net interest income $ 247,100 $ 7,196 ($5,797) $ 248,499 Provision for possible loan losses (13,026) -- -- (13,026) Noninterest income 41,716 45,565 478 87,759 Amortization and depreciation 16,412 17,796 -- 34,208 Noninterest expense 144,851 17,132 3,940 165,923 - --------------------------------------------------------------------------------------- Pretax income 114,527 17,833 (9,259) 123,101 Income taxes (41,739) (6,688) 2,517 (45,910) - --------------------------------------------------------------------------------------- Net income 72,788 11,145 (6,742) 77,191 Acquisition expense, net of taxes 3,674 -- 496 4,170 - --------------------------------------------------------------------------------------- Income excluding acquisition expense $ 76,462 $ 11,145 ($6,246) $ 81,361 - --------------------------------------------------------------------------------------- COLONIAL COLONIAL CONSOLIDATED YEAR ENDED DECEMBER 31, 1996 BANK MORTGAGE OTHER(1) BANCGROUP - --------------------------------------------------------------------------------------- Net interest income $ 197,921 $ 6,354 ($1,586) $ 202,689 Provision for possible loan losses (12,545) -- -- (12,545) Noninterest income 32,945 36,249 1,694 70,888 Amortization and depreciation 11,313 13,088 -- 24,401 Noninterest expense 133,608 16,576 8,929 159,113 - --------------------------------------------------------------------------------------- Pretax income 73,400 12,939 (8,821) 77,518 Income taxes (24,702) (4,834) 2,232 (27,304) - --------------------------------------------------------------------------------------- Net income 48,698 8,105 (6,589) 50,214 SAIF assessment, net of taxes 2,903 -- -- 2,903 Acquisition expense, net of taxes 8,567 -- 967 9,534 - --------------------------------------------------------------------------------------- Income excluding SAIF and acquisition expense $ 60,168 $ 8,105 ($5,622) $ 62,651 - --------------------------------------------------------------------------------------- COLONIAL COLONIAL CONSOLIDATED YEAR ENDED DECEMBER 31, 1996 BANK MORTGAGE OTHER(1) BANCGROUP - --------------------------------------------------------------------------------------- Net interest income $ 168,988 $ 4,690 ($2,335) $171,343 Provision for possible loan losses (8,986) -- -- (8,986) Noninterest income 31,959 28,353 215 60,527 Amortization and depreciation 7,771 9,518 -- 17,289 Noninterest expense 113,563 13,626 6,176 133,365 - --------------------------------------------------------------------------------------- Pretax income 70,627 9,899 (8,296) 72,230 Income taxes (23,806) (3,813) 1,854 (25,765) - --------------------------------------------------------------------------------------- Net income 46,821 6,086 (6,442) 46,465 Acquisition expense, net of taxes 1,066 -- 324 1,390 - --------------------------------------------------------------------------------------- Income excluding acquisition expense $ 47,887 $ 6,086 ($6,118) $ 47,855 - ---------------------------------------------------------------------------------------
(1) Represents holding company financing costs and certain unallocated expenses. THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 29 10 Consistently increasing net income is a primary goal of management. Operating earnings, as restated, increased 30% in 1997, 31% in 1996 and 35% in 1995. The most significant factors affecting income for 1997, 1996 and 1995 are highlighted below and discussed in greater detail in subsequent sections. - An increase in 1997 of 20.5% in average earning assets. This follows an increase of 21.2% in 1996. - An increase of $16.9 million (24%) and $10.4 million (17%) in noninterest income in 1997 and 1996, respectively. - Maintenance of high asset quality and reserve coverage ratios. Net charge-offs were $11.2 million or .23% of average net loans in 1997 and $6.6 million or .17% of average net loans in 1996. - Loan growth, excluding acquisitions, of 9.75% in 1997 following an increase of 16.4% in 1996. - An increase in average loans as a percent of average earning assets to 82.5% in 1997 from 81.3% in 1996. - Noninterest expenses, excluding SAIF special assessment and acquisition expense, as a percent of average assets were reduced to 3.06% in 1997 from 3.16% in 1996. NET INTEREST INCOME Net interest income is the difference between interest and fees earned on loans, securities and other interest-earning assets (interest income) and interest paid on deposits and borrowed funds (interest expense). Three year comparisons of net interest income in dollars and yield on a tax equivalent basis are reflected on the following schedule. The net yield on interest-earning assets was 4.31% in 1997 compared to 4.24% in 1996 and 4.35% in 1995. Over this period net interest income on a fully tax equivalent basis increased to $251 million in 1997 from $205 million in 1996 and $173 million in 1995. The principal factors affecting the Company's yields and net interest income are discussed on the following pages. LEVELS OF INTEREST RATES In 1996 and 1997 rates remained fairly constant resulting in little impact on interest spreads or margins. Short-term rates increased into late 1995 before starting to decline and leveling off in 1996 and remaining relatively constant through 1997. For example, the average fed funds rate for overnight bank borrowings reached 6.00% midyear 1995 before decreasing to 5.95% in December 1995 and 5.25% in February 1996 before increasing to 5.50% in March 1997. The Company's prime rate increased to 9% midyear 1995 before declining to 8.5% in December 1995 and 8.25% in February 1996. BancGroup's prime rate increased to 8.5% in March 1997, where it remained the rest of the year. ACQUISITIONS Further expansion into Florida in 1997 has resulted in improved margins due to the lower cost of funds in this market. The institutions acquired in 1997 had an average cost of funds of 4.47% compared to the 5.08% as originally reported by BancGroup in 1996. The thrift acquisitions completed during 1995 and 1996 had a negative impact on the Company's net interest yield due primarily to the fact that these institutions had virtually no noninterest-bearing deposits and rates on interest-bearing deposits were slightly higher. These institution's rates were adjusted to BancGroup products and rates within a short time after the mergers. INTEREST-EARNING ASSETS - Growth in Earning Assets One of the most significant factors in the Company's increase in income has been the 20.5% and 21.2% increase in average interest-earning assets in 1997 and 1996, respectively. In addition and equally significant, average net loans increased $872 million (22%) from December 31, 1996 to December 31, 1997. Earning assets as a percentage of total average assets was 91.5% in both 1996 and 1997. - Mortgage Loans Held for Sale The level and direction of long-term interest rates has a dramatic impact on the volume of mortgage loan originations from new construction and refinancings. Average mortgage loans held for sale increased from $99 million in 1995 to $135 million in 1996 and $149 million in 1997. Mortgage loans held for sale represent single family residential mortgage loans originated or acquired by CMC then packaged and sold in the secondary market. CMC incurs gains or losses associated with rate fluctuations. CMC limits its risk associated with the sale of these loans through an active hedging program which generally provides for sales commitments on all loans funded. Mortgage loans held for sale are funded primarily with short-term borrowings. - Loan Mix During 1997 all categories of loans increased. The mix of loans remained relatively consistent. Residential real estate loans continue to be the largest concentration at 42.4% and 42.7% of total loans at December 31, 1997 and 1996, respectively. These loans are predominantly adjustable rate mortgages which have a low level of credit risk and accordingly have lower yields than other loans. INTEREST-BEARING LIABILITIES - Cost of Funds Competitive pressures on new time deposits and variable rate deposits remained strong in 1995, 1996 and 1997. The average cost of funds remained fairly THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 30 11 constant at 5.02%, 4.99% and 5.00% in 1995, 1996 and 1997, respectively. The primary reason for little change in the cost of funds is the increase in concentration of Florida deposits which had lower market rates. The Florida interest-bearing liabilities average 4.47% compared to BancGroup's consolidated rate of 5.00%. As discussed under Liquidity and Interest Sensitivity, BancGroup's source of funds are considered adequate to fund future loan growth. AVERAGE VOLUME AND RATES
1997 1996 ------------------------------------ ----------------------------------- AVERAGE AVERAGE AVERAGE AVERAGE (IN THOUSANDS) VOLUME INTEREST RATE VOLUME INTEREST RATE ========================================================================================================================= ASSETS: Interest-earning assets: Loans, net of unearned income (1) $ 4,803,874 $ 432,046 8.99% $3,932,282 $352,810 8.97% Mortgage loans held for sale 149,309 11,701 7.84 135,135 10,577 7.83 Investment securities and securities available for sale: Taxable 732,779 47,084 6.43 618,120 37,822 6.12 Nontaxable (2) 59,895 4,385 7.32 60,799 4,531 7.45 Equity securities (3) 36,318 2,795 7.70 30,412 2,225 7.32 - --------------------------------------------------------------------- ----------------------- Total investment securities 828,992 54,264 6.55% 709,331 44,578 6.28% Federal funds sold and securities purchased under resale agreements 43,682 2,310 5.29 58,851 3,043 5.17 Interest-earning deposits 476 33 6.93 1,370 84 6.13 - --------------------------------------------------------------------- ----------------------- Total interest-earning assets 5,826,333 $ 500,354 8.59% 4,836,969 $411,092 8.50% - --------------------------------------------------------------------- ----------------------- Allowance for loan losses (60,095) (49,697) Cash and due from banks 186,187 159,584 Premises and equipment, net 117,910 86,790 Other assets 297,712 254,798 - ------------------------------------------------------ ----------- TOTAL ASSETS $ 6,368,047 $ 5,288,444 - ------------------------------------------------------ ----------- LIABILITIES AND SHAREHOLDERS' EQUITY: Interest-bearing liabilities: Interest-bearing demand deposits $ 890,488 $ 23,082 2.59% $ 754,902 $ 20,264 2.68% Savings deposits 441,329 14,868 3.37 346,309 11,353 3.28 Time deposits 2,803,866 161,668 5.77 2,273,159 132,777 5.84 Short-term borrowings 760,125 42,588 5.60 713,496 38,746 5.43 Long-term debt 89,421 7,277 8.14 40,004 2,703 6.76 - --------------------------------------------------------------------- ----------------------- Total interest-bearing liabilities 4,985,229 $ 249,483 5.00% 4,127,870 $ 205,843 4.99% - --------------------------------------------------------------------- ----------------------- Noninterest-bearing demand deposits 835,360 690,971 Other liabilities 87,792 83,722 - ------------------------------------------------------ ----------- Total liabilities 5,908,381 4,902,563 Shareholders' equity 459,666 385,881 - ------------------------------------------------------ ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $6,368,047 $ 5,288,444 ========================================================================================================================= RATE DIFFERENTIAL 3.59% 3.51% NET INTEREST INCOME AND NET YIELD ON INTEREST- EARNING ASSETS (4) $ 250,871 4.31% $ 205,249 4.24% ========================================================================================================================= 1995 ------------------------------------ AVERAGE AVERAGE (IN THOUSANDS) VOLUME INTEREST RATE ================================================================================== ASSETS: Interest-earning assets: Loans, net of unearned income (1) $3,123,407 $289,608 9.27% Mortgage loans held for sale 98,785 7,423 7.51 Investment securities and securities available for sale: Taxable 618,188 36,592 5.92 Nontaxable (2) 56,825 4,240 7.46 Equity securities (3) 30,605 2,323 7.59 - ------------------------------------------------------------------- 705,618 43,155 6.12% Total investment securities Federal funds sold and securities purchased under resale agreements 52,716 3,065 5.81 Interest-earning deposits 11,197 693 6.19 - ------------------------------------------------------------------- Total interest-earning assets 3,991,723 $343,944 8.62% - ------------------------------------------------------------------- Allowance for loan losses (42,103) Cash and due from banks 157,674 Premises and equipment, net 66,959 Other assets 198,974 - -------------------------------------------------------- TOTAL ASSETS $4,373,227 - -------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY: Interest-bearing liabilities: Interest-bearing demand deposits $ 724,689 $ 20,756 2.86% Savings deposits 336,517 11,801 3.51 Time deposits 1,778,437 103,773 5.84 Short-term borrowings 505,801 30,328 6.00 Long-term debt 49,855 3,825 7.67 - ------------------------------------------------------------------- Total interest-bearing liabilities 3,395,299 $170,483 5.02% - ------------------------------------------------------------------- Noninterest-bearing demand deposits 612,105 Other liabilities 57,291 - -------------------------------------------------------- Total liabilities 4,064,695 Shareholders' equity 308,532 - -------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $4,373,227 ============================================================================== RATE DIFFERENTIAL 3.60% NET INTEREST INCOME AND NET YIELD ON INTEREST- EARNING ASSETS (4) $173,461 4.35% ==============================================================================
(1) Loans classified as nonaccruing are included in the average volume calculation. Interest earned and average rates on non-taxable loans are reflected on a tax equivalent basis. This interest is included in the total interest earned for loans. Tax equivalent interest earned is actual interest earned times 145%. (2) Interest earned and average rates on obligations of states and political subdivisions are reflected on a tax equivalent basis. Tax equivalent interest earned is actual interest earned times 145%. Tax equivalent average rate is tax equivalent interest earned divided by average volume. (3) Dividends earned and average rates on preferred stock are reflected on a tax equivalent basis. Tax equivalent dividends earned are actual dividends times 137.7%. Tax equivalent average rate is tax equivalent dividends divided by average volume. (4) Net interest income divided by average total interest-earning assets. THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 31 12 ANALYSIS OF INTEREST INCREASES (DECREASES)
1997 CHANGE FROM 1996 1996 CHANGE FROM 1995 --------------------------------------- -------------------------------------------- ATTRIBUTED TO (1) ATTRIBUTED TO (1) --------------------------------------- ------------------------------------------ (IN THOUSANDS) AMOUNT VOLUME RATE MIX AMOUNT VOLUME RATE MIX - -------------------------------------------------------------------------------------------------------------------------- Interest income: Taxable securities $ 9,262 $ 7,016 $ 1,895 $ 351 $ 1,230 $ (4) $ 1,234 $ -- Nontaxable securities (2) (146) (67) (80) 1 291 297 (5) (1) Dividends on preferred stocks (3) 570 432 115 23 (98) (15) (84) 1 - -------------------------------------------------------------------------------------------------------------------------- Total securities 9,686 7,381 1,930 375 1,423 278 1,145 -- Total loans (net of unearned income) 79,236 78,200 848 188 63,202 75,000 (9,371 (2,427) Mortgage loans held for sale 1,124 1,109 13 2 3,154 2,731 309 114 Federal funds sold and securities purchased under resale agreements (733) (784) 69 (18) (22) 357 (339 (40) Interest-earning deposits (51) (55) 11 (7) (609) (608) (6) 5 - -------------------------------------------------------------------------------------------------------------------------- Total 89,262 85,851 2,871 540 67,148 77,758 (8,262) (2,348) - -------------------------------------------------------------------------------------------------------------------------- Interest expense: Interest-bearing demand deposits 2,818 3,640 (696) (126) (492) 865 (1,303 (54) Savings deposits 3,515 3,115 314 86 (448) 343 (769) (22) Time deposits 28,891 30,999 (1,709) (399) 29,004 28,867 107 30 Short-term borrowings 3,842 2,532 1,229 81 8,418 12,453 (2,861) (1,174) Long-term debt 4,574 3,339 552 683 (1,122) (756) (456) 90 - ------------------------------------------------------------------------------------------------------------------------- Total 43,640 43,625 (310) 325 35,360 41,772 (5,282 (1,130) - ------------------------------------------------------------------------------------------------------------------------- Net interest income $ 45,622 $ 42,226 $ 3,181 $ 215 $ 31,788 $ 35,986 $(2,980 $(1,218) =========================================================================================================================
(1) Increases (decreases) are attributed to volume changes and rate changes on the following basis: Volume Change = change in volume times old rate. Rate Change = change in rate times old volume. Mix Change = change in volume times change in rate. (2) Interest earned and average rates on obligations of states and political subdivisions are reflected on a tax equivalent basis. Tax equivalent interest earned as actual interest earned times 145%. Tax equivalent average rate is tax equivalent interest earned divided by average volume. (3) Dividends earned and average rates on preferred stock are reflected on a tax equivalent basis. Tax equivalent dividends earned are actual dividends times 137.7%. Tax equivalent average rate is tax equivalent dividends divided by average volume. NONINTEREST INCOME BancGroup derives approximately 52% of its noninterest income from mortgage banking related activities with the remaining 48% from traditional retail banking services including various deposit account charges, safe deposit box rentals, and credit life commissions. Prior to the CMC acquisition on February 17, 1995, BancGroup had not acquired other well-established ancillary income sources, such as trust operations, mortgage banking or credit card processing services with any of its acquisitions. One of the most important goals from 1995 through 1997 has been to increase noninterest income. The impact of this acquisition is evident by the volume of revenue included in the category entitled mortgage servicing fees. CMC has servicing and subservicing agreements under which it serviced 157,000, 132,000 and 118,000 mortgage loans with principal balances of $12.9 billion, $10.6 billion and $9.1 billion on December 31, 1997, 1996 and 1995, respectively. This servicing portfolio generated servicing fee and late charge income of approximately $35.8 million, $28.1 million and $23.8 million for the years ended December 31, 1997, 1996 and 1995, respectively. CMC, through its wholesale and retail offices, originated $1.6 billion, $1.5 billion and $1.1 billion in residential real estate loans in 1997, 1996, and 1995, respectively. Noninterest income from deposit accounts is significantly affected by competitive pricing on these services and the volume of noninterest-bearing accounts. During 1997 and 1996 average noninterest-bearing demand accounts (excluding CMC custodial deposits) increased 25% and 9%, respectively. This increase in volume and increases in service fee rates resulted in a 18% increase in service charge income in 1997 and a 16% increase in 1996. Other charges, fees, and commissions increased $776,000 or 12% in 1997 and decreased $245,000 or 4% in 1996. The increase is primarily from credit card related fees and official check commissions. BancGroup, through CMC, enters into offers to extend credit for mortgage loans to customers and into obligations to deliver and sell originated or acquired mortgage loans to permanent investors. Sales of servicing and loans servicing released by CMC resulted in income of $1,552,000, $330,000 and $988,000 for 1997, 1996 and 1995, respectively, and is the primary reason for the increase in other income from 1996 to 1997. There were smaller increases in income from safe deposit boxes, ATM transaction fees, check card fees and income from investment sales. BancGroup has an investment sales operation (primarily mutual funds and annuities). Fee income generated from this and other investment service activities totaled $1,193,000, $945,000 and $649,000 in 1997, 1996 and 1995, THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 32 13 respectively. With the Jefferson acquisition in 1997, BancGroup established trust services. Trust fees totaled $1,207,000, $1,095,000 and $1,256,000 for 1997, 1996 and 1995, respectively. Through its investment sales and trust departments, BancGroup has established asset management services for its customers. Securities gains and losses in each of the three years were not significant. While certain securities are considered available for sale, BancGroup currently intends to hold substantially all of its securities portfolio for investment purposes. Realized gains or losses in this portfolio are generally the result of calls of securities or sales of securities within the six months prior to maturity.
INCREASE (DECREASE) ------------------------------------ 1997 1996 YEARS ENDED DECEMBER 31 COMPARED COMPARED ---------------------------- (IN THOUSANDS) 1997 1996 1995 TO 1996 % TO 1995 % - ----------------------------------------------------------------------------------------------------- Noninterest income: Mortgage servicing fees $35,805 $ 28,057 $23,787 $ 7,748 28% $ 4,270 18% Service charges on deposit accounts 26,109 22,085 19,085 4,024 18 3,000 16 Other charges, fees, and commissions 7,159 6,383 6,628 776 12 (245) (4) Other income 17,334 14,608 10,308 2,726 19 4,300 42 - ------------------------------------------------------------------ ------ -------- Subtotal 86,407 71,133 59,808 15,274 21 11,325 19 Other noninterest income items: Securities gains, net 372 123 598 249 (475) Gain (loss) on disposal of other real estate and repossessions 980 (368) 121 1,348 (489) - ------------------------------------------------------------------ ------ -------- Total noninterest income $87,759 $ 70,888 $60,527 $16,871 24% $ 10,361 17% - ------------------------------------------------------------------ ------ -------- - -----------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE The impact of the acquisitions completed from 1995 through 1997 is reflected most noticeably in the increase in net interest income, discussed previously, as well as the 9% increase from 1996 to 1997 in noninterest expense as shown in the following schedule. The decrease in noninterest expense as a percent of average assets from 3.44% in 1995 to 3.39% in 1996 to 3.14% in 1997 is a direct result of the increased efficiency generated by this growth. The foundation for the efficiencies gained in 1997 and 1996 is the Company's current operating structure (regional and community banks supported by centralized backshop operations). Salaries and benefits increased $8.4 million or 14% in 1996 and increased $10.7 million or 15% in 1997. These increases are primarily due to increased staffing levels as a result of acquisitions as well as normal salary increases. The increase in amortization of mortgage servicing rights is a direct result of the growth in the mortgage servicing portfolio of CMC as previously discussed. Amortization of intangible assets increased due to the closing of two acquisitions, Shamrock and Dadeland, accounted for as purchases which required the recording of goodwill and core deposit intangibles. Increases in legal fees and supplies and postage are primarily due to additional branches and customers as a result of acquisitions. In addition to the increase in expenses related to growth, advertising and public relations expenses have increased $702,000 or 13% and $1,169,000 or 27% in 1997 and 1996, respectively, due to concentrated efforts to expand the Company's customer base and take advantage of increased market share in certain key markets. Additional expense was also incurred in the marketing of new products and services such as the check card, telephone banking and computer banking. Other expenses in 1997, 1996 and 1995 include approximately $5,212,000, $11,918,000 and $1,738,000, respectively associated with various acquisition efforts. Acquisition expenses are one time expenses associated with each acquisition. These expenses will continue to be incurred in connection with future acquisitions. As discussed in Note 1 to BancGroup's Consolidated Financial Statements, BancGroup defers certain salary and benefit costs associated with loan originations and amortizes these costs as yield adjustments over the life of the related loans. The amount of costs deferred increased from $10 million in 1995 to $13 million in 1996 and $14 million in 1997 due to changes in the mix of loans, increases in the number of loans closed, and acquisitions. Cost control and the capacity to absorb future growth continue to be a major focus for management. The Company has taken several steps to achieve this goal and to attempt to improve BancGroup's efficiency ratio. These steps include continued centralization of accounting, data processing, deposit and loan operations functions of each acquisition into BancGroup's existing structure. THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 33 14 The Company's deposits are insured by the Federal Deposit Insurance Corporation in two separate funds: the Bank Insurance Fund (BIF) and the Savings Association Insurance Fund (SAIF). Legislation was approved in Congress to recapitalize the SAIF with a special one-time charge of 65.7 basis points, after adjusting for certain allowances. The assessment resulted in a pre-tax charge of $4.5 million in 1996. This recapitalization allowed a reduction in the annual premium rate for future years.
INCREASE (DECREASE) ---------------------------------------- YEARS ENDED DECEMBER 31 1997 1996 ---------------------------- COMPARED COMPARED (IN THOUSANDS) 1997 1996 1995 TO 1996 % TO 1995 % ================================================================================================================= Noninterest expense: Salaries and employee benefits $ 81,157 $ 70,457 $ 62,054 10,700 15% $ 8,403 14% Net occupancy expense 20,198 15,669 14,570 4,529 29 1,099 8 Furniture and equipment expense 17,084 13,417 10,116 3,667 27 3,301 33 Amortization of mortgage servicing rights 17,069 13,627 10,261 3,442 25 3,366 33 Amortization of intangible assets 3,117 2,083 1,543 1,034 50 540 35 Acquisition expense 5,212 11,918 1,738 (6,706) (56) 10,180 586 FDIC assessment 868 2,435 4,647 (1,567) (64) (2,212) (48) SAIF special assessment -- 4,465 -- (4,465) (100) 4,465 100 Advertising and public relations 6,168 5,466 4,297 702 13 1,169 27 Stationery, printing, and supplies 5,060 3,925 3,651 1,135 29 274 8 Telephone 4,915 4,780 3,849 135 3 931 24 Legal fees 3,363 2,846 2,511 517 18 335 13 Postage 3,315 2,701 2,288 614 23 413 18 Insurance 1,766 2,123 1,778 (357) (17) 345 19 Other 30,839 27,602 27,351 3,237 12 251 1 - ---------------------------------------------------------------------- -------- -------- Total noninterest expense $200,131 $183,514 $ 150,654 $ 16,617 9% $ 32,860 22% - ---------------------------------------------------------------------- -------- -------- Noninterest expense, excluding acquisition expense to Average Assets 3.06% 3.16%* 3.41% ======================================================================
* Excluding one-time SAIF special assessment YEAR 2000 COSTS AND TECHNOLOGICAL RESTRUCTURING Most computer software programs and processing systems, including those used by BancGroup and its subsidiaries in their operations, have not been designed to accommodate entries beyond the year 1999 in date fields. Failure to address the anticipated consequences of this design deficiency could have material adverse effects on the business and operations of any business, including BancGroup, that relies on computers and associated technologies. In response to the challenges of addressing such consequences in the banking industry, bank regulatory agencies, including the Federal Reserve, BancGroup's primary regulator, have established a Year 2000 Supervision Program and published guidelines for implementing procedures to bring the computer software programs and processing systems into Year 2000 compliance. In compliance with the guidelines of the Federal Reserve, BancGroup has established a full time Year 2000 task force to address all Year 2000 compliance issues as well as enhancements to computer and communications systems resulting from upgrades initiated in response to Year 2000 issues. Currently, BancGroup is in the process of implementing its plans to bring all major computer systems into Year 2000 compliant status during the last quarter of 1998. Testing of all systems and changes to the systems will begin in the last quarter of 1998 and will continue through the full year of 1999. The major computer systems involved are: - Colonial Bank's mainframe based systems: These systems are provided by third party vendors of national stature. Upgrades to these systems are in progress which will bring the systems into Year 2000 compliant status and provide enhancements to current capability. The costs associated with these upgrades are part of BancGroup's ongoing operating costs. - CMC's servicing and production systems: CMC's systems are primarily in-house systems and are currently being rewritten to Year 2000 compliant status. The cost of the rewrites is estimated to be $1.0 million in 1998 and is incremental to the Company's ongoing operating costs. In addition, CMC's computer hardware is being upgraded to Year 2000 compliant status. This upgrade will also provide additional capacity for the servicing systems as well as an enhanced capability for production. The additional annual cost of the mainframe upgrade (approximately $240,000) is expected to be absorbed through growth in the servicing portfolio and increased production. THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 34 15 - Branch automation operating systems: Colonial Bank's branch automation operating systems are being converted to Windows NT from OS/2. This conversion along with establishment of an intranet and increased capacity of communication lines is the most cost effective method of bringing the system to Year 2000 compliant status while allowing for more efficient flow of information to and from the branches and providing the highest assurance of continuing vendor support for the Company's branch automation solution. The incremental operating cost for these upgrades (approximately $400,000 annually) is expected to be absorbed through operational efficiencies and increased revenue. In 1998, the Company will incur a one-time pretax charge of approximately $2 million to write-off the remaining book value of the current branch automation equipment that is not Windows NT compatible. BancGroup expects to incur certain additional third party costs totalling approximately $300,000 related to assessing the status of the Company's systems and defining its strategy to bring all systems into Year 2000 compliance. These costs have been and will continue to be expensed as incurred and are not significant to BancGroup's on-going operating costs. The costs to bring other miscellaneous systems into Year 2000 compliance are not expected to be material. The above reflects management's current assessment and estimates. Various factors could cause actual results to differ materially from those contemplated by such assessments, estimates and forward-looking statements. Some of these factors may be beyond the control of BancGroup, including but not limited to, vendor representations, technological advancements, economic factors and competitive considerations. Management's evaluation of Year 2000 compliance and technological upgrades is an on-going process involving continual evaluation. Unanticipated problems could develop and alternative solutions may be available that could cause current solutions to be more difficult or costly than currently anticipated. INCOME TAXES The provision for income taxes and related items are as follows:
Tax Provision -------------------------- 1997 $45,910,000 1996 27,304,000 1995 25,765,000
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. Management's goal is to minimize income tax expense and maximize cash yield on earning assets by increasing or decreasing its tax exempt securities and/or investment in preferred and common stock. Accordingly, BancGroup's investment in tax exempt securities was adjusted in 1995, 1996 and 1997. REVIEW OF FINANCIAL CONDITION OVERVIEW Ending balances of selected components of the Company's balance sheet changed from December 31, 1996 to December 31, 1997 as follows:
Increase (Decrease) (IN THOUSANDS) AMOUNT % - -------------------------------------------------------- Assets: Colonial Bank $ 1,159,420 22% CMC 110,505 39 Other(1) (88,858) -- ------------------- Total assets 1,181,067 21 Securities available for sale (12,816) (2) and investment securities Mortgage loans held for sale 67,365 43 Loans, net of unearned income 960,748 23 Mortgage servicing rights 35,016 33 Deposits 956,109 22 Long-Term Debt 51,160 131 - --------------------------------------------------------
(1) Includes eliminations of certain intercompany transactions between Colonial Bank and CMC regarding intercompany debt. Management continuously monitors the financial condition of BancGroup in order to protect depositors, increase shareholder value and protect current and future earnings. The most significant factors affecting BancGroup's financial condition from 1995 through 1997 have been: - A consistent mix of residential mortgage loans of 42.5%, 42.7% and 42.4% of total loans as of December 31, 1995, 1996 and 1997, respectively. BancGroup has continued to place emphasis on these loans as a major product line which has a relatively low loss ratio. - Internal loan growth of 9.75% in 1997 excluding acquisitions. - A 20.9% increase in 1997 in average noninterest bearing demand deposits with 4.3% attributable to CMC escrow deposits and the remainder primarily attributable to acquisitions. - Maintenance of high asset quality and reserve coverage of nonperforming assets. Nonperforming assets were .71%, .81%, and .85% of related assets at December 31, 1997, 1996 and 1995. Net charge-offs were .23%, .17%, and .18% of average loans during 1997, 1996 and 1995. The allowance for possible loan losses was 1.20% of loans at December 31, 1997, providing a 255% coverage of non-performing loans (nonaccrual and renegotiated). THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 35 16 - An increase in the loan to deposit ratio from 94% at December 31, 1995 to 98% at December 31, 1997. Federal Home Loan Bank borrowings continue to be a major source of funding allowing the Company greater funding flexibility. - Increase of $67 million in CMC's mortgage loans held for sale during 1997 due primarily to increased refinancing activities in the fourth quarter of 1997. - Increase of $35 million in mortgage servicing rights due to the net increase in CMC's servicing portfolio to $12.9 billion in 1997. - Issuance of $70 million of Trust Preferred Securities during 1997. These items, as well as a more detailed analysis of BancGroup's financial condition, are discussed in the following sections. - -------------------------------------------------------------------------------- LOANS Growth in loans and maintenance of a high quality loan portfolio are the principal ingredients to improved earnings. This goal is achieved in various ways as outlined below: - Management's emphasis, within all of BancGroup's banking regions, is on loan growth in accordance with local market demands and the lending experience and expertise in the regional banks. Management believes that its strategy of meeting local demands and utilizing local lending expertise has proven successful. Management also believes that any existing concentrations of loans, whether geographically, by industry or by borrower do not expose BancGroup to unacceptable levels of risk. - BancGroup has a significant concentration of residential real estate loans representing 42.4% of total loans. These loans are substantially all mortgages on single-family, owner occupied properties and therefore have minimal credit risk. While a portion of these loans were acquired through acquisitions, the Company has continued to grow this portfolio with a $392 million or 21.8% increase in these loans in 1997. Residential mortgage loans are predominately adjustable rate loans and therefore have not resulted in any material change in the Company's interest rate sensitivity. - BancGroup also has a significant concentration in loans collateralized by commercial real estate as shown on the following table. BancGroup's commercial real estate loans are spread geographically throughout Alabama and other areas including metropolitan Atlanta, Georgia, and Central and South Florida with no more than 25% of these loans in any one geographic region. The Alabama economy experiences a generally slow but steady rate of growth, while Georgia and Florida are experiencing higher rates of growth. Real estate values in BancGroup's lending areas in Alabama, Georgia and Florida have not experienced significantly inflated real estate values due to excessive inflation or speculation. BancGroup's real estate related loans continue to perform at acceptable levels. - CMC holds mortgage loans on a short-term basis (generally less than ninety days) while these loans are being packaged for sale in the secondary market. These loans are classified as mortgage loans held for sale with balances totaling $225,331,000, $157,966,000, and $112,203,000, at December 31, 1997, 1996, and 1995, respectively. There is minimal credit risk associated with these loans. The increases in mortgage loans held for sale are directly related to the fluctuation in long-term interest rates and its related impact on mortgage loan refinancing. These loans are funded principally with short-term borrowings, providing a relatively high margin for these funds. - As discussed more fully in subsequent sections, management has established policies and procedures to ensure maintenance of adequate liquidity and liquidity sources. BancGroup has arranged funding sources in addition to customer deposits which provide the capability for the Company to exceed a 100% loan to deposit ratio and maintain adequate liquidity. - Internal loan growth has been a major factor in the Company's increasing earnings with growth rates of 9.75% in 1997, 16.4% in 1996, 24.1% in 1995, and 9.6% in 1994, excluding acquisitions. Although internal loan growth declined in 1997, the net interest margin improved due primarily to the lower cost of funds of the acquired banks in Florida, as previously discussed. THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 36 17
======================================================================================================== GROSS LOANS BY CATEGORY DECEMBER 31 -------------------------------------------------------------- (IN THOUSANDS) 1997 1996 1995 1994 1993 - -------------------------------------------------------------------------------------------------------- Commercial, financial, and agricultural $ 612,499 $ 589,418 $ 534,773 $ 463,330 $ 381,826 Real estate--commercial 1,379,845 1,033,346 888,592 788,228 659,471 Real estate--construction 622,726 460,537 378,579 246,576 179,156 Real estate--residential 2,194,003 1,801,703 1,551,051 980,916 836,909 Installment and consumer 300,456 278,600 248,943 217,499 195,696 Other 68,089 55,883 48,231 44,599 36,803 - -------------------------------------------------------------------------------------------------------- Total loans $5,177,618 $4,219,487 $3,650,169 $2,741,148 $2,289,861 ========================================================================================================
ALLOCATION OF ALLOWANCE FOR POSSIBLE LOAN LOSSES Allocations of the allowance for possible loan losses are made on an individual loan basis for all identified potential problem loans with a percentage allocation for the remaining portfolio. The allocations of the remaining allowance represent an approximation of the reserves for each category of loans based on management's evaluation of the respective historical charge-off experience and risk within each loan type.
ALLOCATION OF THE ALLOWANCE FOR POSSIBLE LOAN LOSSES DECEMBER 31 ----------------------------------------- 1997 1996 ----------------------------------------- PERCENT OF PERCENT OF LOANS TO LOANS TO (IN THOUSANDS) AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS - -------------------------------------------------------------------------- Balance at end of period applicable to: Commercial, financial, and agricultural $11,890 11.8% $11,318 14.0% Real estate--commercial 21,554 26.7 16,866 24.5 Real estate--construction 12,107 12.0 9,910 10.9 Real estate--residential 10,970 42.4 9,009 42.7 Installment and consumer 4,535 5.8 4,251 6.6 Other 1,126 1.3 2,089 1.3 - -------------------------------------------------------------------------- Total $62,182 100.0% $53,443 100.0% ========================================================================== DECEMBER 31 -------------------------------------------------------------- 1995 1994 1993 -------------------------------------------------------------- PERCENT OF PERCENT OF PERCENT OF LOANS TO LOANS TO LOANS TO (IN THOUSANDS) AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS - ------------------------------------------------------------------------------------------- Balance at end of period applicable to: Commercial, financial, and agricultural $10,018 14.7% $ 9,385 16.9% $ 8,728 16.7% Real estate--commercial 14,982 24.3 13,497 28.8 12,822 28.8 Real estate--construction 7,616 10.4 3,759 9.0 1,878 7.8 Real estate--residential 7,741 42.5 9,252 35.8 7,534 36.6 Installment and consumer 3,753 6.8 3,423 7.9 3,334 8.5 Other 2,807 1.3 3,211 1.6 2,558 1.6 - ------------------------------------------------------------------------------------------- Total $46,917 100.0% $42,527 100.0% $36,854 100.0% ===========================================================================================
As discussed in a subsequent section, BancGroup seeks to maintain adequate liquidity and minimize exposure to interest rate volatility. The goals of BancGroup with respect to loan maturities and rate sensitivity continue to focus on shorter term maturities and floating or adjustable rate loans. At December 31, 1997, approximately 56.1% of loans were floating rate or adjustable rate loans. Contractual maturities may vary significantly from actual maturities due to loan extensions, early payoffs due to refinancing and other factors. Fluctuations in interest rates are also a major factor in early loan pay-offs. The uncertainties, particularly with respect to interest rates, of future events make it difficult to predict the actual maturities. BancGroup has not maintained records related to trends of early pay-off since management does not believe such trends would present any significantly more accurate estimate of actual maturities than the contractual maturities presented. THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 37 18 LOAN MATURITY/RATE SENSITIVITY
DECEMBER 31, 1997 ---------------------------------------------------------------------------------------- RATE SENSITIVITY, LOANS MATURING MATURING RATE SENSITIVITY OVER 1 YEAR ---------------------------------------------------------------------------------------- WITHIN 1-5 OVER (IN THOUSANDS) 1 YEAR YEARS 5 YEARS FIXED FLOATING FIXED FLOATING ==================================================================================================================== Commercial, financial, and agricultural $ 285,637 $ 271,159 $ 55,703 $ 300,610 $ 311,889 $ 217,344 $ 109,518 Real estate--commercial 289,393 735,047 355,405 796,235 583,610 694,336 396,116 Real estate--construction 391,616 188,649 42,461 172,172 450,554 80,309 150,801 Real estate--residential 220,794 293,732 1,679,477 688,055 1,505,948 553,201 1,420,008 Installment and consumer 89,952 196,985 13,519 278,529 21,927 206,377 4,127 Other 18,058 22,701 27,330 36,341 31,748 31,405 18,626 - -------------------------------------------------------------------------------------------------------------------- $1,295,450 $1,708,273 $2,173,895 $2,271,942 $2,905,676 $1,782,972 $2,099,196 ====================================================================================================================
LOAN QUALITY A major key to long-term earnings growth is maintenance of a high quality loan portfolio. BancGroup's directive in this regard is carried out through its policies and procedures for review of loans and through a company wide senior credit administration function. This function participates in the loan approval process with the regional banks and provides an independent review and grading of loan credits on a continual basis. BancGroup has standard policies and procedures for the evaluation of new credits, including debt service evaluations and collateral guidelines. Collateral guidelines vary with the credit worthiness of the borrower, but generally require maximum loan-to-value ratios of 85% for commercial real estate and 90% for residential real estate. Commercial, financial and agricultural loans are generally collateralized by business inventory, accounts receivables or new business equipment at 50%, 80% and 90% of estimated value, respectively. Installment and consumer loan collateral where required is based on 90% loan to value ratios. Based on the credit review process and loan grading system, BancGroup determines its allowance for possible loan losses and the amount of provision for loan losses. The allowance for possible loan losses is maintained at a level which, in management's opinion, is adequate to absorb potential losses on loans present in the loan portfolio. The amount of the allowance is affected by: (1) loan charge-offs, which decrease the allowance; (2) recoveries on loans previously charged-off, which increase the allowance; (3) the provision for possible loan losses charged to income, which increases the allowance, and (4) the allowance for loan losses of acquired banks. In determining the provision for possible loan losses in an effort to evaluate portfolio risks, it is necessary for management to monitor fluctuations in the allowance resulting from actual charge-offs and recoveries and to periodically review the size and composition of the loan portfolio in light of current and anticipated economic conditions. The overall goal and result of the aforementioned policies and procedures is to provide a sound basis for new credit extensions and an early recognition of problem assets to allow the most flexibility in their timely disposition. LOAN LOSS EXPERIENCE During 1997 the ratio of net charge-offs to average loans increased to .23% from .17% in 1996. The increase in net charge-offs in 1997 is primarily due to the charge-off of three large credits totaling approximately $3.1 million in North and Central Alabama. As a result of the Company's localized lending strategies and early identification of potential problem loans, BancGroup's net charge-offs have been consistently low. In addition, the current concentration of loans in residential real estate loans has had a favorable impact on net charge-offs. The following schedule reflects greater than 100% coverage of nonperforming loans (nonaccrual and renegotiated) by the allowance for loan losses. Management has not targeted any specific coverage ratio in excess of 100%, and the coverage ratio may fluctuate significantly as larger loans are placed into or removed from nonperforming status. Management's focus has been on establishing reserves related to an earlier identification of potential problem loans. Management is committed to maintaining adequate reserve levels to absorb future losses. This commitment has allowed BancGroup to weather economic uncertainties without disruption of its earnings. THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 38 19
============================================================================================================== SUMMARY OF LOAN LOSS EXPERIENCE YEARS ENDED DECEMBER 31 ------------------------------------------------------------------ (IN THOUSANDS) 1997 1996 1995 1994 1993 - -------------------------------------------------------------------------------------------------------------- Allowance for possible loan losses-- January 1 $ 53,443 $ 46,917 $ 42,527 $ 36,854 $ 24,936 Charge-offs: Commercial, financial, and agricultural 4,201 3,534 3,724 2,789 4,179 Real estate--commercial 2,929 2,130 1,182 1,637 938 Real estate--construction 433 1,783 44 2 957 Real estate--residential 1,601 829 460 419 571 Installment and consumer 5,448 3,335 2,915 1,905 2,173 Other 686 239 163 168 7 - -------------------------------------------------------------------------------------------------------------- Total charge-offs 15,298 11,850 8,488 6,920 8,825 - -------------------------------------------------------------------------------------------------------------- Recoveries: Commercial, financial, and agricultural 892 1,387 1,120 1,960 906 Real estate--commercial 991 1,493 48 243 120 Real estate--construction 91 1 11 12 25 Real estate--residential 244 692 201 84 112 Installment and consumer 1,788 1,567 1,337 1,496 1,530 Other 133 73 46 43 7 - -------------------------------------------------------------------------------------------------------------- Total recoveries 4,139 5,213 2,763 3,838 2,700 - -------------------------------------------------------------------------------------------------------------- Net charge-offs 11,159 6,637 5,725 3,082 6,125 Addition to allowance charged to operating expense 13,026 12,545 8,986 8,254 11,767 Allowance added from bank acquisitions 6,872 618 1,129 501 6,276 - -------------------------------------------------------------------------------------------------------------- Allowance for possible loan losses-- December 31 $ 62,182 $ 53,443 $ 46,917 $ 42,527 $ 36,854 ============================================================================================================== Loans (net of unearned income) December 31 $5,176,926 $4,216,178 $3,645,727 $2,736,041 $2,289,233 Ratio of ending allowance to ending loans (net of unearned income) 1.20% 1.27% 1.29% 1.55% 1.61% Average loans (net of unearned income) $4,803,874 $3,932,282 $3,123,407 $2,477,768 $1,813,569 Ratio of net charge-offs to average loans (net of unearned income) 0.23% 0.17% 0.18% 0.12% 0.34% Allowance for loan losses as a percent of nonperforming loans (nonaccrual and renegotiated) 255% 223% 258% 238% 215% ===============================================================================================================
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 39 20 NONPERFORMING ASSETS BancGroup classifies problem loans into four categories: nonaccrual, past due, renegotiated and other potential problems. When management determines a loan no longer meets the criteria for performing loans and collection of interest appears doubtful, the loan is placed on nonaccrual status. Loans are generally placed on nonaccrual if full collection of principal and interest becomes unlikely (even if all payments are current) or if the loan is delinquent in principal or interest payments for 90 days or more, unless the loan is well secured and in the process of collection. BancGroup's policy is also to charge off installment loans 120 days past due unless they are in the process of foreclosure and are adequately collateralized. Management closely monitors all loans which are contractually 90 days past due, renegotiated or nonaccrual. These loans are summarized as follows:
======================================================================================================== NONPERFORMING ASSETS DECEMBER 31 --------------------------------------------------- (IN THOUSANDS) 1997 1996 1995 1994 1993 - -------------------------------------------------------------------------------------------------------- Aggregate loans for which interest is not being accrued $23,398 $22,334 $16,272 $14,348 $15,628 Aggregate loans renegotiated to provide a reduction or deferral of interest or principal because of a deterioration in the financial condition of the borrower 952 1,683 1,882 3,541 1,494 - -------------------------------------------------------------------------------------------------------- Total nonperforming loans* 24,350 24,017 18,154 17,889 17,122 Other real estate and in-substance foreclosure 11,875 9,894 12,704 17,349 24,142 Repossessions 756 338 171 81 101 - -------------------------------------------------------------------------------------------------------- Total nonperforming assets* $36,981 $34,250 $31,029 $35,319 $41,365 ======================================================================================================== Aggregate loans contractually past due 90 days for which interest is being accrued $ 7,028 $ 7,682 $ 3,421 $ 4,329 $ 2,230 Total nonperforming loans as a percent of net loans 0.47% 0.57% 0.50% 0.65% 0.75% Total nonperforming assets as a percent of net loans, other real estate and repossessions 0.71% 0.81% 0.85% 1.28% 1.79% Total nonaccrual, renegotiated and 90 day past due loans for which interest is being accrued as a percent of total loans 0.61% 0.75% 0.59% 0.81% 0.85% Allowance for loan loss as a percent of nonperforming loans (nonaccrual and renegotiated) 255% 223% 258% 238% 215% =========================================================================================================
* Total does not include loans contractually past due 90 days or more which are still accruing interest Fluctuations from year to year in the balances of nonperforming assets are attributable to several factors including changing economic conditions in various markets, nonperforming assets obtained in various acquisitions and the disproportionate impact of larger (over $500,000) individual credits. On December 31, 1993 BancGroup completed the acquisition of First AmFed Corporation. With this acquisition the Company recorded $11.2 million in other real estate, $1.6 million in nonaccrual loans, and $.5 million in 90 day past due loans that were still accruing. The carrying value of these nonperforming assets was adjusted at the acquisition date to their current estimated fair values based on BancGroup's intention to dispose of them in the most expeditious and profitable manner. Excluding these nonperforming assets acquired with First AmFed, the Company's nonperforming asset ratio would have been 1.22% at December 31, 1993 compared to 1.79% noted above. During 1994 a substantial portion of these problem assets, particularly other real estate, was disposed of and the nonperforming asset ratio was reduced to 1.28%. Management, through its loan officers, internal loan review staff and external examinations by regulatory agencies, has identified approximately $129 million of potential problem loans not included above. The status of these loans is reviewed at least quarterly by loan officers and the centralized loan review function and annually by regulatory agencies. In connection with such reviews, collateral values are updated where considered necessary. If collateral values are judged insufficient or other sources of repayment inadequate, the loans are reduced to estimated recoverable amounts through increases in reserves allocated to the loans or charge-offs. As of December 31, 1997 substantially all of these loans are current with their existing repayment terms. Management believes that classification of such loans as THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 40 21 potential problem loans well in advance of their reaching a delinquent status allows the Company the greatest flexibility in correcting problems and providing adequate reserves without disruption of earnings trends. Given the reserves and the ability of the borrowers to comply with the existing repayment terms, management believes any exposure from these potential problem loans has been adequately addressed at the present time. The above nonperforming loans and potential problem loans represent all material credits for which management has serious doubts as to the ability of the borrowers to comply with the loan repayment terms. Management also expects that the resolution of these problem credits as well as other performing loans will not materially impact future operating results, liquidity or capital resources. Interest income recognized and interest income foregone on nonaccrual loans was not significant for the years ended December 31, 1997, 1996, 1995, 1994 and 1993. The recorded investment in impaired loans at December 31, 1997 and 1996 were $5,020,000 and $4,303,000, respectively and these loans had a corresponding valuation allowance of $3,071,000 and $2,673,000, respectively. SECURITIES BancGroup determines on a daily basis the funds available for short-term investment. Funds available for long-term investment are projected based upon anticipated loan and deposit growth, liquidity needs, pledging requirements and maturities of securities, as well as other factors. Based on these factors and management's interest rate and income tax forecast, an investment strategy is determined. Significant elements of this strategy as of December 31, 1997 include: - BancGroup's investment in U.S. Treasury securities and obligations of U.S. government agencies is substantially all pledged against public funds deposits or used as collateral for repurchase agreements. - BancGroup is required to carry Federal Home Loan Bank (FHLB) Stock in connection with its borrowings with FHLB. BancGroup is also required to carry Federal Reserve Stock since its subsidiary bank became a member bank of the Federal Reserve system in June 1997. - Investment alternatives which maximize the after-tax net yield are considered. - Management has also attempted to increase the investment portfolio's overall yield by investing funds in excess of pledging requirements in high-grade corporate notes and mortgage-backed securities. - The investment strategy also incorporates high-grade preferred stocks when the tax equivalent yield on these investments provides an attractive alternative. The yields on these preferred stocks are adjusted on a short-term basis and provide tax advantaged income without long-term interest rate risk. - The maturities of investment alternatives are determined in consideration of the yield curve, liquidity needs and the Company's asset/liability gap position. Maturities were reduced to the 2-3 year range in 1995, increased to the 3-5 year range in 1996 and 1997. - The risk elements associated with the various types of securities are also considered in determining investment strategies. U.S. Treasury and U.S. government agency obligations are considered to contain virtually no default or prepayment risk. Mortgage-backed securities have varying degrees of risk of impairment of principal. Impairment risk is primarily associated with accelerated prepayments, particularly with respect to longer maturities purchased at a premium and interest-only strip securities. BancGroup's mortgage backed security portfolio as of December 31, 1997 does not include any interest-only strips and the amount of unamortized premium on mortgage backed securities is approximately $973,000. The recoverability of BancGroup's investment in mortgage-backed securities is reviewed periodically, and where necessary, appropriate adjustments are made to income for impaired values. - Obligations of state and political subdivisions, as well as other securities, have varying degrees of credit risk associated with the individual borrowers. The credit ratings and the credit worthiness of these securities are reviewed periodically and appropriate reserves are established when necessary. Investment securities are those securities which management has the ability and intent to hold until maturity. The decline in investment securities is due to maturities and calls in the portfolio. Securities available for sale represent those securities that BancGroup intends to hold for an indefinite period of time or that may be sold in response to changes in interest rates, prepayment risk and other similar factors. These securities are recorded at market value with unrealized gains or losses, net of any tax effect, added or deducted from shareholders' equity. The balance in securities available for sale increased from $462 million at December 31, 1996 to $485 million at December 31, 1997. At December 31, 1997, there was no single issuer, with the exception of U.S. government and U.S. government agencies, where the aggregate book value of these securities exceeded ten percent of shareholders' equity ($49.4 million). The changes noted above are reflected on the following table. THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 41 22 SECURITIES BY CATEGORY
CARRYING VALUE AT DECEMBER 31 ------------------------------ (IN THOUSANDS) 1997 1996 1995 - -------------------------------------------------------- Investment securities: U.S. Treasury securities and obligations of U.S. government agencies $145,768 $171,176 $181,729 Mortgage-backed securities 72,155 76,268 57,784 Obligations of state and political subdivisions 44,566 45,912 52,484 Other 1,741 6,786 18,944 - -------------------------------------------------------- Total $264,230 $300,142 $310,941 ======================================================== CARRYING VALUE AT DECEMBER 31 ------------------------------ (IN THOUSANDS) 1997 1996 1995 - -------------------------------------------------------- Securities available for sale: U.S. Treasury securities and obligations of U.S. government agencies $245,266 $262,342 $279,101 Mortgage-backed securities 216,732 178,338 70,165 Obligations of state and political subdivisions 17,403 13,983 11,883 Other 5,917 7,559 22,864 - -------------------------------------------------------- Total $485,318 $462,222 $384,013 ========================================================
The carrying value of securities at December 31, 1997 mature as follows: 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 $55,013 6.24% $ 90,255 6.44% $ -- -- $ 500 7.25% Mortgage-backed securities 7,078 6.38 43,179 6.92 5,935 7.14% 15,963 7.53 Obligations of state and political subdivisions (1) 6,359 4.60 19,727 5.02 14,498 5.22 3,982 5.32 Other 270 7.58 411 8.36 1,060 5.97 -- -- ------------------------------------------------------------------------ Total $68,720 6.31% $153,572 6.50% $21,493 8.30% $20,445 7.83% ============================================================================================================= Securities available for sale (2): U.S. Treasury securities and obligations of U.S. government agencies $203,690 6.36% Mortgage-backed securities 216,732 6.75 Obligations of state and political subdivisions (1) 15,046 4.72 Other 5,157 7.24 --------------- Total $440,625 6.51% =============================================================================================================
(1) The weighted average yields are calculated on the basis of the cost and effective yield weighted for the scheduled maturity of each security. The weighted average yields on tax exempt obligations have been computed on a fully taxable equivalent basis using a tax rate of 38%. The taxable equivalent adjustment represents the annual amounts of income from tax exempt obligations multiplied by 145%. (2) Securities available for sale are shown as maturing within one year although BancGroup intends to hold these securities for an indefinite period of time. (See Contractual Maturities in Note 3 to the consolidated financial statements.) This category excludes all corporate common and preferred stocks since these instruments have no maturity date. =============================================================================== THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 42 23 DEPOSITS BancGroup's deposit structure consists of the following:
DECEMBER 31 % OF TOTAL ------------------------------------------- (IN THOUSANDS) 1997 1996 1997 1996 ============================================================================================== Noninterest-bearing demand deposits $ 898,182 $ 695,378 17.1% 16.2% Interest-bearing demand deposits 1,078,935 786,007 20.5 18.3 Savings deposits 449,159 397,406 8.6 9.2 Certificates of deposits less than $100,000 1,856,720 1,601,774 35.3 37.3 Certificates of deposits more than $100,000 647,803 493,129 12.3 11.5 IRAs 280,033 242,932 5.3 5.6 Open time deposits 44,998 83,095 0.9 1.9 - ---------------------------------------------------------------------------------------------- Total deposits $5,255,830 $4,299,721 100.0% 100.0% ==============================================================================================
The growth in deposits and the mix of deposits has been most significantly impacted in 1996 and 1997 by the acquisitions accounted for under the purchase method of accounting and immaterial poolings. Noninterest-bearing demand deposits have increased $203 million (29%) from December 31, 1996 to December 31, 1997, of which 18% was due to the aforementioned acquisitions and 8% was due to CMC escrow deposits. The remaining increase is attributable to the development of customer relationships and sales efforts. BancGroup has attempted through its acquisitions and branch expansion programs to increase its market presence in Alabama and expand into growth markets in the Southeast. The expansion was concentrated in Central and South Florida and the Atlanta metropolitan area. The principal goal is to provide the Company's retail customer base with convenient access to branch locations while enhancing the Company's potential for future increases in profitability. In 1997, BancGroup continued to utilize its established retail banking, training and policies and procedures departments as well as its branch automation project to reinforce the Company's goal of providing the customer with the best possible service. In connection with this goal, several other initiatives have been undertaken, including establishing private banking and trust services, international banking, an electronic banking division which includes home banking, business banking, automatic teller, credit card and check card services. Full service banking is offered in fourteen Wal-Mart locations with twelve located in Alabama, one in Tennessee and one in Florida. Primarily through acquisitions, the number of retail branches increased to 197 in 1997 from 135 in 1996. BancGroup is continuing its sales of investment products, such as mutual funds and annuities to customers seeking alternatives to deposit products. The overall goal of these steps has been to efficiently provide customers with the financial products they need and desire. In 1995, the Company initiated a brokered Certificate of Deposit (CD) program to offer CD's in increments of $1,000 to $99,000 to out of market customers at competitive rates and maturities. At December 31, 1997 and 1996, $78 million and $138 million, respectively of CD's were outstanding under this program. In 1997, the Company initiated a brokered money market program. Funds are transferred daily to meet short-term funding fluctuations. The rate currently charged for these funds is 5.5%. At December 31, 1997, these accounts totaled $147 million. SHORT-TERM BORROWINGS Short-term borrowings were comprised of the following at December 31, 1997, 1996 and 1995:
(IN THOUSANDS) 1997 1996 1995 ====================================================== Federal funds purchased and securities sold under repurchase agreements $252,729 $127,112 $152,505 Federal Home Loan Bank borrowings 645,000 715,000 465,000 Other short-term borrowings 24,040 2,017 1,141 - ------------------------------------------------------ Total $921,769 $844,129 $618,646 ======================================================
BancGroup has available Federal Funds lines from upstream banks including the Federal Home Loan Bank (FHLB) totaling $285 million at December 31, 1997. In addition, correspondent banks and customers with repurchase agreements have provided a consistent base of short-term funds. BancGroup became a member of the FHLB in late 1992. As a member of the FHLB, BancGroup has availability of up to $1.5 billion from the FHLB on either a short or long-term basis excluding funds available through the federal funds line. Short-term borrowings, including FHLB borrowings, have been used to fund short-term assets, primarily mortgage loans held for sale, and loans. FHLB borrowings have been used during 1997 and 1996 to fund loan growth. As discussed more fully in the "Liquidity and Interest Sensitivity" section of this report, the line of credit with the FHLB is considered a primary source of funding for the Company's asset growth. Colonial Bank has an additional $225 million available through a warehouse line with FHLB that is collateralized by mortgage loans held for sale with no balance outstanding at December 31, 1997. THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 43 24 LIQUIDITY AND INTEREST SENSITIVITY BancGroup has addressed its liquidity and interest rate sensitivity through its policies and structure for asset/liability management. It has created the Asset/Liability Management Committee ("ALMCO"), the objective of which is to optimize the net interest margin while assuming reasonable business risks. ALMCO annually establishes operating constraints for critical elements of BancGroup's business, such as liquidity and rate sensitivity. ALMCO constantly monitors performance and takes action in order to meet its objectives. Of primary concern to ALMCO, is maintaining adequate liquidity. Liquidity is the ability of an organization to meet its financial commitments and obligations on a timely basis. These commitments and obligations include credit needs of customers, withdrawals by depositors, repayment of debt when due and payment of operating expenses and dividends. The consolidated statement of cash flows identifies the three major sources and uses of cash (liquidity) as operating, investing and financing activities. Operating activities reflect cash generated from operations. Management views cash flow from operations as a major source of liquidity. Investing activities represent a primary usage of cash with the major net increase being attributed to loan growth. When securities mature they are generally reinvested in new securities or assets held for sale. Financing activities generally provide funding for the growth in loans and securities with increased deposits. Short-term borrowings are used to provide funding for temporary gaps in the funding of long-term assets and deposits, as well as to provide funding for mortgage loans held for sale and loan growth. BancGroup has the ability to tap other markets for certificates of deposits and to utilize established lines for Federal funds purchased and FHLB advances. BancGroup maintains and builds diversified funding sources in order to provide flexibility in meeting its requirements. From 1993 through 1997 the significant changes in BancGroup's cash flows have centered around loan growth and fluctuations in mortgage loans held for sale. Loan growth of $483 million in 1997 and $623 million in 1996 has been one of the principal uses of cash in both years. Mortgage loans held for sale increased in 1997, using $67 million in funds. Short-term borrowings excluding acquisitions increased $68 million in 1997 and were used to fund loan growth. Management has chosen to fund short-term fluctuations in the volume of mortgage loans held for sale with short-term borrowings as opposed to increasing rate sensitive deposits. Deposit growth excluding acquisitions of $293 million with $87 million from the previously discussed brokered CD and money market programs provided an additional source of funding for internal loan growth. As noted previously, the composition of the Company's loan portfolio has changed over the past three years. BancGroup at December 31, 1997 had $2.2 billion of residential real estate loans. These loans provide collateral for the current $1.5 billion credit availability at the FHLB. The FHLB unused credit capacity, $769 million, at December 31, 1997, provides the Company significant flexibility in asset/liability management, liquidity and deposit pricing. In January 1996, the Company called $7.5 million of its 1985 subordinated debentures which had a maturity date of 2000. As a result, 806,598 shares of BancGroup stock were issued and cash was paid for the remaining debentures. In December 1996, BancGroup entered into a two year revolving line of credit for $35 million and a term loan with a maximum principal amount of $15.5 million. This line of credit provides an additional source of funding for acquisition related activities. In January 1997, BancGroup issued $70 million in Trust Preferred Securities. These securities qualify as Tier I Capital and carry an 8.92% interest rate. A portion of the proceeds of the offering were utilized to pay off the term note and revolving debt outstanding. The remainder of the proceeds were used for acquisitions and other business purposes. Management believes its liquidity sources and funding strategies are adequate given the nature of its asset base and current loan demand. The primary uses of funds as reflected in BancGroup's parent only statement of cash flows were $3.8 million for the payment of interest on debt, $16.6 million for principal payment on term notes (See Note 9 to the consolidated financial statements), $15.9 million to purchase treasury stock which was subsequently issued in the First Commerce acquisition, $55.2 million advanced to Colonial Bank for acquisition related activities including Dadeland Bancshares and $25.0 million for the payment of dividends. The parent company's primary sources of funds were $40.9 million in dividends received from its subsidiaries and $70 million from the issuance of the Trust Preferred Securities. Dividends payable by national and state banks in any year, without prior approval of the appropriate regulatory authorities, are limited to the bank's net profits (as defined) for that year combined with its retained net profits for the preceding two years. Under these limitations, approximately $125 million of retained earnings plus certain 1998 earnings would be available for distribution to BancGroup, from its subsidiaries, as dividends in 1998 without prior approval from the respective regulatory authorities. BancGroup anticipates that the cash flow needs of the parent company are well below the regulatory dividend restrictions of its subsidiary banks. At December 31, 1997, BancGroup's liquidity position was adequate with loan maturities of $1.3 billion, or 25% of the total loan portfolio, due within one year. Securities totaling $509 million or 68% of the total portfolio also had maturities within one year or have been classified as available for sale. As of December 31, 1997 there were, however, no current plans to dispose of any significant portion of these securities. In addition BancGroup has $769 million in additional borrowing capacity at the FHLB and Colonial Bank has $225 million available through a warehouse line with FHLB. THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 44 25 BancGroup's asset/liability management policy has also established targets for interest rate sensitivity. Changes in interest rates will necessarily lead to changes in the net interest margin. It is ALMCO's goal to minimize volatility in the net interest margin by taking an active role in managing the level, mix and maturities of assets and liabilities and by analyzing and taking action to manage mismatch and basis risk. The interest sensitivity schedule reflects a 12.8% negative gap at 12 months; therefore, BancGroup has a greater exposure to net income if interest rates increase. BancGroup's profitability is affected by fluctuations in interest rates. A sudden and substantial increase in interest rates may adversely impact the Company's earnings to the extent that the interest rates on interest earning assets and interest bearing liabilities do not change at the same speed , to the same extent or on the same basis. The Company monitors the impact of changes in interest rates on its net interest income using several tools. One measure of the Company's exposure to differential changes in interest rates between assets and liabilities is shown in the Company's Maturity and Rate Sensitivity Analysis. The following table measures the impact on net interest income and on net portfolio value of an immediate change in interest rates in 100 basis point increments. Net portfolio value is defined as the net present value of assets, liabilities, and off-balance sheet contracts. Following are the estimated impacts of immediate changes in interest rates at the specified levels at December 31, 1997.
PERCENTAGE CHANGE IN: BASIS NET INTEREST NET PORTFOLIO POINTS INCOME(1) VALUE(2) ========================================= +400 (8)% (16)% +300 (3) (9) +200 0 (5) +100 1 (2) -100 (4) 2 -200 (9) 3 -300 (15) 3 -400 (25) (4) ------------------------------------------
(1) The percentage change in this column represents net interest income for 12 months in a stable interest rate environment versus the Net Interest Income in the various rate scenarios. (2) The percentage change in this column represents net portfolio value of the Company in a stable interest rate environment versus the net portfolio value in the various rate scenarios. The computation of prospective effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates, loan prepayments and deposit decay rates, and should not be relied upon as indicative of actual results. Further, the computations do not contemplate any actions BancGroup could undertake in response to changes in interest rates. Management has managed the asset/liability position of the bank through traditional sources. BancGroup does, however, use off balance sheet instruments for hedging purposes to limit its risk associated with the sale of mortgage loans by providing sales commitments on all loans funded and held for sale. (See Note 6 to the consolidated financial statements.) In December 1997 BancGroup purchased $30 million of Bank-Owned Life Insurance ("BOLI"). This long-term asset represents life insurance purchased from highly rated insurance companies on certain employees with the bank named as the beneficiary. The Company considers these funds available for the future payment of benefits due the employee's beneficiaries from group benefit plans. The following table summarizes BancGroup's interest rate sensitivity at December 31, 1997. THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 45 26
AT DECEMBER 31, 1997 ------------------------------------------------------------------------------------ INTEREST SENSITIVE WITHIN ------------------------------------------------------------------------------------ TOTAL 0-90 91-180 181-365 1-5 OVER (IN THOUSANDS) BALANCE DAYS DAYS DAYS YEARS 5 YEARS ============================================================================================================================ Rate Sensitive Assets: Federal funds sold and resale agreements $ 19,160 $ 19,160 $ -- $ -- $ -- $ -- Investment securities 264,230 32,436 23,916 22,807 143,502 41,569 Securities available for sale 485,318 187,796 19,190 15,589 163,676 99,067 Mortgage loans held for sale 225,331 225,331 -- -- -- -- - ---------------------------------------------------------------------------------------------------------------------------- Loans, net of unearned income 5,176,926 1,817,989 258,723 500,770 1,992,268 607,176 Allowance for possible loan losses (62,182) (21,837) (3,108) (6,015) (23,930) (7,292) - ---------------------------------------------------------------------------------------------------------------------------- Net loans 5,114,744 1,796,152 255,615 494,755 1,968,338 599,884 Nonearning assets 742,045 -- -- -- -- 742,045 ============================================================================================================================ Total Assets $ 6,850,828 $ 2,260,875 $ 298,721 $ 533,151 $ 2,275,516 $ 1,482,565 ============================================================================================================================ Rate Sensitive Liabilities: Interest-bearing demand deposits $ 1,078,935 $ 689,474 $ -- $ -- $ -- $ 389,461 Savings deposits 449,159 240,086 -- 424 -- 208,649 Certificates of deposits less than $100,000 1,856,720 490,441 375,846 606,091 383,505 837 Certificates of deposits more than $100,000 647,803 244,544 143,872 153,461 105,926 -- IRAs 280,033 76,127 46,851 45,158 110,963 934 Open time deposits 44,998 43,045 116 315 1,522 -- Short-term borrowings 921,769 726,769 60,00 10,000 125,000 -- Long-term debt 90,252 256 241 298 682 88,775 Noncosting liabilities & equity 1,481,159 -- -- -- -- 1,556,162 ============================================================================================================================ Total Liabilities & Equity $ 6,850,828 $ 2,510,742 $ 626,926 $ 815,747 $ 727,598 $ 2,169,815 ============================================================================================================================ Gap $ -- $ (249,867) $(328,205) $(282,596) $ 1,547,918 $ (687,250) ============================================================================================================================ Cumulative Gap $ -- $ (249,867) $(578,072) $(869,668) $ 687,250 $ -- ============================================================================================================================
At the bottom of the table is the interest rate sensitivity gap which is the difference between rate sensitive assets and rate sensitive liabilities. In reviewing the table, it should be noted that the balances are shown for a specific point in time and, because the interest sensitivity position is dynamic, it can change significantly over time. For all interest earning assets and interest bearing liabilities, variable rate assets and liabilities are reflected in the time interval of the assets or liabilities' earliest repricing date. Fixed rate assets and liabilities have been allocated to various time intervals based on contractual repayment. Furthermore, the balances reflect contractual repricing of the deposits and management's position on repricing certain deposits where management discretion is permitted. Prepayment assumptions are applied at a constant rate based on the Company's historical experience. Certain demand deposit accounts and regular savings accounts have been classified as repricing beyond one year in accordance with regulatory guidelines. While these accounts are subject to immediate withdrawal, experience has shown them to be relatively rate insensitive. If these accounts were included in the 0 - 90 day category, the gap in that time frame would be a negative $848 million with a corresponding cumulative gap at one year of negative $1.5 billion. CAPITAL ADEQUACY AND RESOURCES Management is committed to maintaining capital at a level sufficient to protect shareholders and depositors, provide for reasonable growth and fully comply with all regulatory requirements. Management's strategy to achieve these goals is to retain sufficient earnings while providing a reasonable return to shareholders in the form of dividends and return on equity. BancGroup's dividend pay-out ratio in 1997 was 33%. This level is in the Company's target range of 30-45%. Dividend rates are determined by the Board of Directors in consideration of several factors including: current and projected capital ratios, liquidity and income levels and other bank dividend yields and payment ratios. The amount of a cash dividend, if any, rests with the discretion of the Board of Directors of BancGroup as well as upon applicable statutory constraints such as the Delaware law requirement that dividends may be paid only out of capital surplus or out of net profits for the fiscal year in which the dividend is declared or the preceding fiscal year. BancGroup also has access to equity capital markets through both public and private issuances. Management considers these sources and related return in addition to internally generated capital in evaluating future THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 46 27 expansion or acquisition opportunities. The Federal Reserve Board has issued guidelines identifying minimum Tier I leverage ratios relative to total assets and minimum capital ratios relative to risk-adjusted assets. The minimum leverage ratio is 3% but is increased from 100 to 200 basis points based on a review of individual banks by the Federal Reserve. The minimum risk adjusted capital ratios established by the Federal Reserve are 4% for Tier I and 8% for total capital. BancGroup's actual capital ratios and the components of capital and risk adjusted asset information as of December 31, 1997 are stated below:
Capital (thousands): Tier I Capital: Shareholders' equity (excluding unrealized gain on securities available for sale and intangibles) plus Trust Preferred Securities $ 495,490 Tier II Capital: Allowable loan loss reserve 62,182 Subordinated debt 6,088 ---------- Total Capital $ 563,760 Risk Adjusted Assets (thousands) $4,987,690 Total Assets (thousands) $6,850,828
1997 1996 1995 =========================================================== Tier I leverage ratio 7.47% 6.77% 7.10% Risk Adjusted Capital Ratios: Tier I Capital Ratio 9.93% 9.20% 9.48% Total Capital Ratio 11.30% 10.66% 11.27%
BancGroup has increased capital gradually through normal earnings retention as well as through stock registrations to capitalize acquisitions. In January 1997, BancGroup issued $70 million of Trust Preferred Securities which qualify as Tier 1 Capital. REGULATORY RESTRICTIONS As noted previously, dividends payable by national and state banks in any year, without prior approval of the appropriate regulatory authorities, are limited. The subsidiary banks are also required by law to maintain noninterest-bearing deposits with the Federal Reserve Bank to meet regulatory reserve requirements. At December 31, 1997, these deposits totaled $18.2 million. FINANCIAL ACCOUNTING STANDARDS BOARD RELEASES In June 1996, the Financial Accounting Standards Board issued SFAS No. 125 "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." This Statement is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after December 31, 1996, and is to be applied prospectively. Earlier or retroactive application is not permitted. However, in December 1996, the Financial Accounting Standards Board issued SFAS No. 127, "Deferral of the Effective Date of Certain Provisions of FASB Statement No. 125." This statement defers the effective date of certain provisions for one year (December 31, 1997). The deferred provisions relate to repurchase agreements, dollar-roll transactions, securities lending, and similar transactions. The effective date for all other transfers and servicing of financial assets is unchanged. Management does not believe that the adoption of SFAS No. 125, as amended by SFAS No. 127, will have a material impact on BancGroup's financial statements. BancGroup adopted SFAS No. 128, Earnings Per Share, on December 31, 1997. (See Note 1 to the consolidated financial statements.) In June 1997, the Financial Accounting Standards Board issued SFAS No. 130, "Reporting of Comprehensive Income," which establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains, and losses) in a full set of financial statements. This statement also requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. This statement is effective for fiscal years beginning after December 15, 1997. Although earlier application is permitted, BancGroup has chosen not to adopt early. Reclassification of financial statements for earlier periods provided for comparative purposes will be required. In June 1997, the Financial Accounting Standards Board also issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," which establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. This statement also establishes standards for related disclosures about products and services, geographic areas, and major customers. This statement requires the reporting of financial and descriptive information about an enterprise's reportable operating segments. This statement is effective for financial statements for periods beginning after December 15, 1997. In the initial year of application, comparative information for earlier years is to be restated. Under SFAS No. 131, BancGroup will report two segments, commercial and mortgage banking. THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 47 28 CAUTIONARY STATEMENT PURSUANT TO SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 This report contains "forward-looking statements" within the meaning of the federal securities laws. The forward-looking statements in this report are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in or implied by the statements. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include, among other things, the following possibilities: (i) deposit attrition, customer loss, or revenue loss in the ordinary course of business; (ii) increases in competitive pressure in the banking industry; (iii) costs or difficulties related to the integration of the businesses of BancGroup and the institutions acquired are greater than expected; (iv) changes in the interest rate environment which reduce margins (v) general economic conditions, either nationally or regionally, that are less favorable than expected, resulting in, among other things, a deterioration in credit quality; (vi) changes which may occur in the regulatory environment; (vii) a significant rate of inflation (deflation); and (viii) changes in the securities markets. When used in this Report, the words "believes," "estimates," "plans," "expects," "should," "may," "might," "outlook," and "anticipates," and similar expressions as they relate to BancGroup (including its subsidiaries), or its management are intended to identify forward-looking statements. THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 48 29 Colonial BancGroup, Inc. REPORT OF INDEPENDENT ACCOUNTANTS 97 TO THE BOARD OF DIRECTORS AND SHAREHOLDERS THE COLONIAL BANCGROUP, INC. We have audited the accompanying consolidated statements of condition of The Colonial BancGroup, Inc. and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of The Colonial BancGroup, Inc. and subsidiaries as of December 31, 1997 and 1996, the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Montgomery, Alabama February 27, 1998 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 49 30 Colonial BancGroup, Inc. CONSOLIDATED STATEMENTS OF CONDITION 97
December 31, 1997 and 1996 (Dollars in thousands) ASSETS 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------ Cash and due from banks $ 254,252 $ 231,787 Interest-bearing deposits in banks 19,160 29,413 Securities available for sale (Note 3) 485,318 462,222 Investment securities (market value: 1997, $266,336; 1996, $302,295) (Note 3) 264,230 300,142 Mortgage loans held for sale 225,331 157,966 Loans, net of unearned income (Note 4) 5,176,926 4,216,178 Less: Allowance for possible loan losses (Note 5) (62,182) (53,443) - ------------------------------------------------------------------------------------------------------------------------------- Loans, net 5,114,744 4,162,735 Premises and equipment, net (Note 7) 129,588 93,997 Excess of cost over tangible and identified intangible assets acquired, net 67,128 29,773 Mortgage servicing rights 141,800 106,784 Other real estate owned 12,631 10,232 Accrued interest and other assets 136,646 84,710 - ------------------------------------------------------------------------------------------------------------------------------ Total $6,850,828 $ 5,669,761 ============================================================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------------------------------------------------------------------------------------------------ Deposits: Noninterest-bearing demand $ 898,182 $ 695,378 Interest-bearing demand 1,078,935 786,007 Savings 449,159 397,406 Time 2,829,554 2,420,930 - ------------------------------------------------------------------------------------------------------------------------------ Total deposits 5,255,830 4,299,721 FHLB short-term borrowings (Note 8) 645,000 715,000 Other short-term borrowings (Note 8) 276,769 129,129 Subordinated debt (Note 9) 6,088 8,612 Trust preferred securities (Note 9) 70,000 -- Other long-term debt (Note 9) 14,164 30,480 Other liabilities 88,723 84,111 - ------------------------------------------------------------------------------------------------------------------------------ Total liabilities 6,356,574 5,267,053 - ------------------------------------------------------------------------------------------------------------------------------ Commitments and contingencies (Notes 6, 12, 15) Shareholders' equity: (Notes 2, 10) Common Stock, $2.50 par value; 100,000,000 shares authorized; issued and outstanding; 42,545,425 and 39,145,685 in 1997 and 1996 106,364 97,864 Additional paid in capital 193,619 168,064 Retained earnings 194,317 137,956 Unearned compensation (1,682) (1,603) Unrealized gain on securities available for sale, net of taxes 1,636 427 - ------------------------------------------------------------------------------------------------------------------------------ Total shareholders' equity 494,254 402,708 - ------------------------------------------------------------------------------------------------------------------------------ Total $6,850,828 $ 5,669,761 ==============================================================================================================================
See notes to consolidated financial statements. THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 50 31 Colonial BancGroup, Inc. CONSOLIDATED STATEMENTS OF INCOME 97
For the years ended December 31, 1997, 1996 and 1995 (In thousands, except per share amounts) 1997 1996 1995 - --------------------------------------------------------------------------------------------------------------------- INTEREST INCOME: Interest and fees on loans $442,741 $362,231 $296,422 Interest and dividends on securities: Taxable 47,119 37,861 36,397 Nontaxable 3,017 3,119 3,117 Dividends 2,767 2,194 2,197 Interest on federal funds sold and securities purchased under resale agreements 1,625 2,517 2,949 Other interest 718 610 744 - --------------------------------------------------------------------------------------------------------------------- Total interest income 497,987 408,532 341,826 - --------------------------------------------------------------------------------------------------------------------- INTEREST EXPENSE: Interest on deposits 199,623 164,394 136,331 Interest on short-term borrowings 42,588 38,746 30,409 Interest on long-term debt 7,277 2,703 3,743 - --------------------------------------------------------------------------------------------------------------------- Total interest expense 249,488 205,843 170,483 - --------------------------------------------------------------------------------------------------------------------- NET INTEREST INCOME 248,499 202,689 171,343 Provision for possible loan losses (Notes 1, 5) 13,026 12,545 8,986 - --------------------------------------------------------------------------------------------------------------------- NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE LOAN LOSSES 235,473 190,144 162,357 - --------------------------------------------------------------------------------------------------------------------- NONINTEREST INCOME: Mortgage servicing fees 35,805 28,057 23,787 Service charges on deposit accounts 26,109 22,085 19,085 Securities gains, net (Note 3) 372 123 598 Other charges, fees and commissions 7,159 6,383 6,628 Other income 18,314 14,240 10,429 - --------------------------------------------------------------------------------------------------------------------- Total noninterest income 87,759 70,888 60,527 - --------------------------------------------------------------------------------------------------------------------- NONINTEREST EXPENSE: Salaries and employee benefits 81,157 70,457 62,054 Occupancy expense of bank premises, net 20,198 15,669 14,570 Furniture and equipment expenses 17,084 13,417 10,116 Amortization of mortgage servicing rights 17,069 13,627 10,261 Amortization of intangible assets 3,117 2,083 1,543 SAIF special assessment -- 4,465 -- Acquisition expense 5,212 11,918 1,738 Other expense (Note 17) 56,294 51,878 50,372 - --------------------------------------------------------------------------------------------------------------------- Total noninterest expense 200,131 183,514 150,654 - --------------------------------------------------------------------------------------------------------------------- INCOME BEFORE INCOME TAXES 123,101 77,518 72,230 Applicable income taxes (Note 18) 45,910 27,304 25,765 - --------------------------------------------------------------------------------------------------------------------- Net Income $ 77,191 $ 50,214 $ 46,465 ===================================================================================================================== EARNINGS PER SHARE (NOTE 19): Basic $ 1.84 $ 1.30 $ 1.30 Diluted 1.78 1.25 1.21 AVERAGE NUMBER OF SHARES OUTSTANDING: Basic 42,034 38,615 35,696 Diluted 43,436 40,385 39,421 =====================================================================================================================
See notes to consolidated financial statements. THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 51 32 Colonial BancGroup, Inc. CONSOLIDATED STATEMENTS OF CHANGES 97 IN SHAREHOLDERS' EQUITY
For the years ended December 31, 1997, 1996 and 1995 (In thousands, except per share amounts) CLASS A CLASS B ADDITIONAL COMMON STOCK COMMON STOCK COMMON STOCK PAID IN RETAINED UNEARNED SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS COMPENSATION - ---------------------------------------------------------------------------------------------------------------------------------- Balance, January 1, 1995 33,450,262 $83,626 1,270,176 $3,175 $128,156 $ 73,746 $ (840) - ---------------------------------------------------------------------------------------------------------------------------------- Shares issued under: Directors Plan 1,716 4 32,332 $ 81 241 Stock Option Plans 13,182 33 224,396 562 1,165 Dividend Reinvestment 53,516 134 448 Stock Bonus Plan 50,000 125 697 (822) Employee Stock Purchase Plan 536 1 7,534 19 90 Issuance of common stock by a pooled bank prior to merger 156,790 392 43,270 108 1,477 (1,360) (187) Conversion of Class A Common Stock and Class B Common Stock to Common Stock (33,622,486) (84,056) (1,270,176) (3,175) 34,892,662 87,231 Issuance of shares for business combinations 2,089,994 5,225 22,591 Net income 46,465 Cash dividends: (Class A, $0.1125 per share; Class B, $0.0625 per share; Common, $0.3375 per share) (10,521) Cash dividends by pooled bank prior to merger (1,808) Conversion of 7 1/2% convertible subordinated debentures 23,418 59 269 Conversion of 12 3/4% convertible subordinated debentures 1,120 2 8 Changes in unrealized gain (loss) on securities available for sale, net of taxes - ---------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1995 37,418,242 93,546 155,142 106,522 (1,849) - ---------------------------------------------------------------------------------------------------------------------------------- Shares issued under: Directors Plan 31,710 79 249 Stock Option Plans 499,079 1,248 1,706 Dividend Reinvestment 60,136 150 897 Stock Bonus Plan 48,340 121 833 246 Employee Stock Purchase Plan 10,264 26 154 Issuance of shares for business combinations 154,596 386 2,214 Net income 50,214 Cash dividends: ($.054 per share) (16,175) Cash dividends by pooled bank prior to merger (2,398) Treasury Stock activity by pooled bank prior to merger (58,206) (146) (485) (207) Conversion of 7 1/2% convertible subordinated debentures 174,926 437 2,011 Conversion of 12 3/4% convertible subordinated debentures 806,598 2,017 5,343 Change in unrealized gain (loss) on securities available for sale, net of taxes - ---------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1996 39,145,685 97,864 168,064 137,956 (1,603) - ---------------------------------------------------------------------------------------------------------------------------------- Issuance of shares for immaterial poolings: Tomoka Bancorporation 661,992 1,655 1,628 3,043 Great Southern Bancorp 927,811 2,320 5,287 2,514 First Independence Bank of Florida 503,932 1,260 5,634 (1,430) Shares issued under: Directors Plan 31,082 78 425 Stock Option Plans 669,889 1,674 3,333 Dividend Reinvestment 42,199 105 843 Stock Bonus Plan 23,012 58 443 (79) Employee Stock Purchase Plan 16,392 41 385 Purchase of treasury stock for issuance in a business combination (671,165) (1,678) (14,209) Issuance of shares for business combinations 1,016,261 2,541 19,717 Net income 77,191 Cash dividends: ($0.60 per share) (24,957) Conversion of 7 1/2% convertible subordinated debentures 163,164 408 1,877 Conversion of 7% convertible subordinated debentures 15,171 38 192 Change in unrealized gain on securities available for sale, net of taxes - ---------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1997 42,545,425 $106,364 $193,619 $194,317 $(1,682) ================================================================================================================================== Unrealized Gain (Loss) on Total Available Shareholders' For Sale Equity - -------------------------------------------------------------------------------------------------- Balance, January 1, 1995 $ (12,546) $275,317 - -------------------------------------------------------------------------------------------------- Shares issued under: Directors Plan 326 Stock Option Plans 1,760 Dividend Reinvestment 582 Stock Bonus Plan -- Employee Stock Purchase Plan 110 Issuance of common stock by a pooled bank prior to merger 430 Conversion of Class A Common Stock and Class B Common Stock to Common Stock Issuance of shares for business combinations 27,816 Net income 46,465 Cash dividends: (Class A, $0.1125 per share; Class B, $0.0625 per share; Common, $0.3375 per share) (10,521) Cash dividends by pooled bank prior to merger (1,808) Conversion of 7 1/2% convertible subordinated debentures 328 Conversion of 12 3/4% convertible subordinated debentures 10 Changes in unrealized gain (loss) on securities available for sale, net of taxes 11,916 11,916 - -------------------------------------------------------------------------------------------------- Balance, December 31, 1995 (630) 352,731 - -------------------------------------------------------------------------------------------------- Shares issued under: Directors Plan 328 Stock Option Plans 2,954 Dividend Reinvestment 1,047 Stock Bonus Plan 1,200 Employee Stock Purchase Plan 180 Issuance of shares for business combinations 2,600 Net income 50,214 Cash dividends: ($.054 per share) (16,175) Cash dividends by pooled bank prior to merger (2,398) Treasury Stock activity by pooled bank prior to merger 838) Conversion of 7 1/2% convertible subordinated debentures 2,448 Conversion of 12 3/4% convertible subordinated debentures 7,360 Change in unrealized gain (loss) on securities available for sale, net of taxes 1,057 1,057 - -------------------------------------------------------------------------------------------------- Balance, December 31, 1996 427 402,708 - -------------------------------------------------------------------------------------------------- Issuance of shares for immaterial poolings: Tomoka Bancorporation (23) 6,303 Great Southern Bancorp (25) 10,096 First Independence Bank of Florida (25) 5,439 Shares issued under: Directors Plan 503 Stock Option Plans 5,007 Dividend Reinvestment 948 Stock Bonus Plan 422 Employee Stock Purchase Plan 426 Purchase of treasury stock for issuance in a business combination (15,887) Issuance of shares for business combinations 22,258 Net income 77,191 Cash dividends: ($0.60 per share) (24,957) Conversion of 7 1/2% convertible subordinated debentures 2,285 Conversion of 7% convertible subordinated debentures 230 Change in unrealized gain on securities available for sale, net of taxes 1,282 1,282 - -------------------------------------------------------------------------------------------------- Balance, December 31, 1997 $1,636 $494,254 ==================================================================================================
See notes to consolidated financial statements. THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 52 33 Colonial BancGroup, Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS 97
For the years ended December 31, 1997, 1996, and 1995 (In thousands) 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net income $ 77,191 $ 50,214 $ 46,465 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation, amortization and accretion 20,185 14,792 14,072 Amortization of mortgage servicing rights 17,069 13,627 10,261 Provision for possible loan losses 13,026 12,545 8,986 Deferred income taxes 1,320 (1,398) (1,960) Gain on sale of securities, net (372) (123) (598) (Gain) loss on sale of other assets (1,318) (534) 38 Additions to mortgage servicing rights (52,085) (32,264) (32,139) Net increase in mortgage loans held for sale (67,365) (45,763) (50,647) Increase in interest receivable (11,546) (1,837) (9,249) (Increase) decrease in prepaids and other receivables (756) 426 4,693 Increase (decrease) in accrued expenses and accounts payable 563 (448) (4,714) Increase in accrued income taxes 1,284 136 3,086 Increase in interest payable 8,665 3,948 11,395 Other, net (9,070) 8,702 (12,664) - ------------------------------------------------------------------------------------------------------------------- Total adjustments (80,400) (28,191) (59,440) - ------------------------------------------------------------------------------------------------------------------- Net cash (used in) provided by operating activities (3,209) 22,023 (12,975) - ------------------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Proceeds from maturities of securities available for sale 105,846 97,025 72,187 Proceeds from sales of securities available for sale 36,476 61,714 86,458 Purchase of securities available for sale (59,071) (153,843) (190,306) Proceeds from maturities of investment securities 198,874 149,166 105,531 Purchases of investment securities (133,157) (144,527) (55,186) Net decrease in short-term investment securities -- 5,300 200 Net increase in loans (482,647) (622,502) (677,752) Purchase of bank owned life insurance (30,000) -- -- Cash and cash equivalents received in bank acquisitions, net (Note 2) 28,242 1,437 23,201 Cash and cash equivalents received in the purchase of assets and assumption of liabilities (Note 2) -- 7,028 -- Capital expenditures (35,742) (23,249) (12,382) Proceeds from sale of other real estate owned 2,784 10,324 10,987 Purchase of treasury stock for issuance in a business acquisition (15,887) -- -- Other, net 3,258 111 2,474 - ------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (381,024) (612,016) (634,588) - ------------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Net increase in demand, savings and time deposits 292,605 381,551 553,600 Net increase in federal funds purchased, repurchase agreements and other short-term borrowings 68,512 226,060 193,341 Proceeds from issuance of long-term debt 70,000 6,394 12,092 Repayment of long-term debt (16,996) (5,064) (55,526) Proceeds from issuance of common stock 7,281 3,318 2,406 Proceeds from issuance of subordinated debt -- -- 1,425 Dividends paid (24,957) (18,573) (12,329) - ------------------------------------------------------------------------------------------------------------------- Net cash provided by financing activities 396,445 593,686 695,009 - ------------------------------------------------------------------------------------------------------------------- Net increase in cash and cash equivalents 12,212 3,693 47,446 Cash and cash equivalents at beginning of year 261,200 257,507 210,061 - ------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of year (Note 1) $273,412 $ 261,200 $257,507 =================================================================================================================== Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $241,389 $ 196,316 $157,996 Income taxes 43,905 29,637 23,202 Non-cash transactions: Transfer of loans to other real estate $ 14,458 $ 8,770 $ 6,013 Origination of loans from the sale of other real estate 612 763 830 Securitization of mortgage loans -- 87,641 -- Transfer of investment securities to securities available for sale -- -- 60,421 Conversion of subordinated debentures to common stock 2,515 9,808 428 Assets acquired in business combinations 554,803 77,923 307,425 Liabilities assumed in business combinations (526,741) 76,760 302,810 ===================================================================================================================
See notes to consolidated financial statements. THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 53 34 Colonial BancGroup, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 97 For the years ended December 31, 1997, 1996 and 1995 1. SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES The Colonial BancGroup, Inc. ("BancGroup") and its subsidiaries operate predominantly in the domestic commercial and mortgage banking industry. The accounting and reporting policies of BancGroup and its subsidiaries conform to generally accepted accounting principles and to general practice within the banking industry. The following summarizes the most significant of these policies. BASIS OF PRESENTATION--The consolidated financial statements of BancGroup for 1996 and 1995 have been previously restated to give retroactive effect to the April 1997 combination with Fort Brooke Bancorporation ("Fort Brooke"), the January 1997 combinations with Jefferson Bancorp, Inc. ("Jefferson") and D/W Bankshares, Inc. ("Bankshares") as well as the July 1996 combinations with Commercial Bancorp of Georgia, Inc., ("Commercial") and Southern Banking Corporation ("Southern") which were accounted for as poolings of interests. (See Note 2) PRINCIPLES OF CONSOLIDATION--The consolidated financial statements and notes to consolidated financial statements include the accounts of BancGroup and its subsidiaries, all of which are wholly owned. All significant intercompany balances and transactions have been eliminated. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS--The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS--BancGroup considers cash and highly liquid investments with maturities of three months or less when purchased as cash and cash equivalents. Cash and cash equivalents consist primarily of cash and due from banks, interest-bearing deposits in banks and Federal funds sold. INVESTMENT SECURITIES AND SECURITIES AVAILABLE FOR SALE--Securities are classified as either held to maturity, available for sale or trading. Held to maturity or investment securities are securities for which management has the ability and intent to hold on a long-term basis or until maturity. These securities are carried at amortized cost, adjusted for amortization of premiums, and accretion of discount to the earlier of the maturity or call date. Securities available for sale represent those securities intended to be held for an indefinite period of time, including securities that management intends to use as part of its asset/liability strategy, or that may be sold in response to changes in interest rates, changes in prepayment risk, the need to increase regulatory capital or other similar factors. Securities available-for-sale are recorded at market value with unrealized gains and losses net of any tax effect, added or deducted directly from shareholders' equity. Securities carried in trading accounts are carried at market value with unrealized gains and losses reflected in income. Realized and unrealized gains and losses are based on the specific identification method. MORTGAGE LOANS HELD FOR SALE--Mortgage loans held for sale are carried at the lower of aggregate cost or market. The cost of mortgage loans held for sale is the mortgage note amount plus certain net origination costs less discounts collected. The cost of mortgage loans is adjusted by gains and losses generated from corresponding hedging transactions, principally using forward sales commitments, entered into to protect the inventory value of the loans from increases in interest rates. Hedge positions are also used to protect the pipeline of commitments to originate and purchase loans from changes in interest rates. Gains and losses resulting from changes in the market value of the inventory, pipeline and open hedge positions are netted. Any net gain that results is deferred; any net loss that results is recognized when incurred. Hedging gains and losses realized during the commitment and warehousing period related to the pipeline and mortgage loans held for sale are deferred. Hedging losses are recognized currently if deferring such losses would result in mortgage loans held for sale and the pipeline being valued in excess of their estimated net realizable value. The aggregate cost of mortgage loans held for sale at December 31, 1997 and 1996 is less than their aggregate net realizable value. Gains or losses on the sale of Federal National Mortgage Association mortgage-backed securities are recognized on the earlier of the date settled or the date that a forward commitment to deliver a security to a dealer is effectively offset by a commitment to buy a similar security (paired off). These gains or losses are included in other income. LOANS--Loans are stated at face value, net of unearned income and allowance for possible loan losses. Interest income on loans is recognized under the "interest" method except for certain installment loans where interest income is recognized under the "Rule of 78's" (sum-of-the-months digits) method, which does not produce results significantly different from the "interest" method. Nonrefundable fees and costs associated with originating or acquiring loans are recognized under the interest method as a yield adjustment over the life of the corresponding loan. ALLOWANCE FOR POSSIBLE LOAN LOSSES--A loan is considered impaired, based on current information and events, if it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Uncollateralized loans are measured for impairment based on the present value of expected future cash flows discounted at the historical effective THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 54 35 interest rate, while all collateral-dependent loans are measured for impairment based on the fair value of the collateral. Smaller balance homogeneous loans which consist of residential mortgages and consumer loans are evaluated collectively and reserves are established based on historical loss experience. The allowance for loan losses is established through charges to earnings in the form of a provision for loan losses. Increases and decreases in the allowance due to changes in the measurement of the impaired loans are included in the provision for loan losses. Loans continue to be classified as impaired unless they are brought fully current and the collection of scheduled interest and principal is considered probable. When a loan or portion of a loan is determined to be uncollectible, the portion deemed uncollectible is charged against the allowance and subsequent recoveries, if any, are credited to the allowance. Management's periodic evaluation of the adequacy of the allowance is based on the Bank's past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrowers' ability to repay, estimated value of any underlying collateral, and an analysis of current economic conditions. While management believes that it has established the allowance in accordance with generally accepted accounting principles and has taken into account the views of its regulators and the current economic environment, there can be no assurance that in the future the Bank's regulators or its economic environment will not require further increases in the allowance. INCOME RECOGNITION ON IMPAIRED AND NONACCRUAL LOANS--Loans, including impaired loans, are generally classified as nonaccrual if they are past due as to maturity or payment of principal or interest for a period of more than 90 days, unless such loans are well collateralized and in the process of collection. If a loan or a portion of a loan is classified as doubtful or is partially charged off, the loan is generally classified as nonaccrual. Loans that are on a current payment status or past due less than 90 days may also be classified as nonaccrual if repayment in full of principal and/or interest is in doubt. Loans may be returned to accrual status when all principal and interest amounts contractually due (including arrearages) are reasonably assured of repayment within an acceptable period of time, and there is a sustained period of repayment performance (generally a minimum of six months) by the borrower, in accordance with the contractual terms of interest and principal. While a loan is classified as nonaccrual and the future collectibility of the recorded loan balance is doubtful, collections of interest and principal are generally applied as a reduction to principal outstanding, except in the case of loans with scheduled amortizations where the payment is generally applied to the oldest payment due. When the future collectibility of the recorded loan balance is expected, interest income may be recognized on a cash basis. In the case where a nonaccrual loan has been partially charged off, recognition of interest on a cash basis is limited to that which would have been recognized on the recorded loan balance at the contractual interest rate. Receipts in excess of that amount are recorded as recoveries to the allowance for loan losses until prior chargeoffs have been fully recovered. Interest income recognized on a cash basis was immaterial for the years ended December 31, 1997, 1996 and 1995. PREMISES AND EQUIPMENT--Bank premises and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation is computed generally using the straight-line method over the estimated useful lives of the related assets. Leasehold improvements are amortized over the terms of the respective leases or the estimated useful lives of the improvements, whichever is shorter. Estimated useful lives range from five to forty years for bank buildings and leasehold improvements and three to ten years for furniture and equipment. Expenditures for maintenance and repairs are charged against earnings as incurred. Costs of major additions and improvements are capitalized. Upon disposition or retirement of property, the asset account is relieved of the cost of the item and the allowance for depreciation is charged with accumulated depreciation. Any resulting gain or loss is reflected in current income. OTHER REAL ESTATE OWNED--Other real estate owned includes real estate acquired through foreclosure or deed taken in lieu of foreclosure. These amounts are recorded at the lower of cost or market value less estimated costs to sell. Any write-down from the cost to market value required at the time of foreclosure is charged to the allowance for possible loan losses. Subsequent write-downs and gains or losses recognized on the sale of these properties are included in noninterest income or expense. INTANGIBLE ASSETS--Intangible assets acquired in acquisitions of banks are stated at cost, net of accumulated amortization. Amortization is provided over a period up to twenty-five years for the excess of cost over tangible and identified intangible assets acquired using the straight-line method or an accelerated method, as applicable, and ten years for deposit core base intangibles using an accelerated method. The recoverability of intangible assets is reviewed periodically based on the current earnings of acquired entities. If warranted, analysis, including undiscounted income projections, are made to determine if adjustments to carrying value or amortization periods are necessary. MORTGAGE SERVICING RIGHTS--The total cost of mortgage loans held for sale is allocated to mortgage servicing rights and mortgage loans held for sale (without mortgage servicing rights) based on their relative fair values. The aggregate basis is used to determine the lower of cost or market value when capitalizing mortgage servicing rights. Mortgage servicing rights are being amortized primarily using an accelerated method in proportion to the estimated net servicing income from the related loans, which approximates a level yield method. The amortization period represents management's best estimate of the remaining loan lives. The carrying values of the mortgage servicing rights THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 55 36 are evaluated for impairment based on their fair values categorized by coupon rate. Fair values of servicing rights are determined by estimating the present value of future net servicing income considering the average interest rate and the average remaining lives of the related mortgage loans being serviced. The servicing portfolio is geographically disbursed throughout the United States with a concentration in the southern states. The mortgage servicing rights at December 31, 1997 and 1996 are stated net of accumulated amortization of approximately $55 million and $38 million, respectively. Mortgage servicing fees are deducted from the monthly payments on mortgage loans and are recorded as income when earned. Fees from investors for servicing their portfolios of residential loans generally range from 1/4 of 1% to 1/2 of 1% per year on the outstanding principal balance. LONG LIVED ASSETS--BancGroup reviews long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If the future undiscounted cash flows expected to result from the use of the asset and its eventual disposition are less than the carrying amount of the asset, an impairment loss is recognized. Long-lived assets and certain intangibles to be disposed of are reported at the lower of carrying amount or fair value less cost to sell. INCOME TAXES--BancGroup uses the asset and liability method of accounting for income taxes (See Note 18). Under the asset and liability method, deferred tax assets and liabilities are recorded at currently enacted tax rates applicable to the period in which assets or liabilities are expected to be realized or settled. Deferred tax assets and liabilities are adjusted to reflect changes in statutory tax rates resulting in income adjustments in the period such changes are enacted. STOCK-BASED COMPENSATION--BancGroup adopted SFAS No. 123, "Accounting for Stock-Based Compensation," on January 1, 1996. This statement defines a fair value based method of accounting for an employee stock option or similar equity instrument. However, SFAS No. 123 allows an entity to continue to measure compensation costs for those plans using the intrinsic value based method of accounting prescribed by APB Opinion No. 25, Accounting for Stock Issued to Employees. Entities electing to remain with the accounting in Opinion No. 25 must make pro forma disclosures of net income and earnings per share as if the fair value based method of accounting defined in SFAS No. 123 had been applied. Under the fair value based method, compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. Under the intrinsic value based method, compensation cost is the excess, if any, of the quoted market price of the stock at the grant date or other measurement date over the amount an employee must pay to acquire the stock. BancGroup has elected to continue to measure compensation cost for its stock option plans under the provisions in APB Opinion 25. EARNINGS PER SHARE--BancGroup adopted SFAS No. 128, "Earnings Per Share" on December 31, 1997. This statement establishes standards for computing and presenting earnings per share (EPS) and applies to entities with publicly held common stock or potential common stock. This statement replaces the presentation of primary EPS with a presentation of basic EPS and requires dual presentation of basic and diluted EPS on the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. All prior year earnings per share data has been restated to reflect the presentation required under SFAS No. 128 as well as a two-for-one stock split effected in the form of a 100 percent stock dividend distributed on February 11, 1997. ADVERTISING COSTS--Advertising costs are expensed as incurred. RECLASSIFICATIONS--Certain reclassifications have been made to the 1996 financial statements to conform to the 1997 presentation. RECENTLY ISSUED ACCOUNTING STANDARDS--In June 1996, the Financial Accounting Standards Board issued SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." This statement provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities utilizing the financial-components approach that focuses on control. Under that approach, after a transfer of financial assets, an entity recognizes the financial and servicing assets it controls and the liabilities it has incurred, derecognizes financial assets when control has been surrendered, and derecognizes liabilities when extinguished. This Statement is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after December 31, 1996, and is to be applied prospectively. Earlier or retroactive application is not permitted. However, in December 1996, the Financial Accounting Standards Board issued SFAS No. 127, "Deferral of the Effective Date of Certain Provisions of FASB Statement No. 125." This statement defers the effective date of certain provisions for one year (December 31, 1997). The deferred provisions relate to repurchase agreements, dollar-roll transactions, securities lending, and similar transactions. The effective date for all other transfers and servicing of financial assets is unchanged. Management does not believe that the adoption of SFAS No. 125 will have a material impact on BancGroup's financial statements. In June 1997, the Financial Accounting Standards Board issued SFAS No. 130, "Reporting of Comprehensive Income," which establishes standards for reporting and display of comprehensive income and its components (revenues expenses, gains, and losses) in a full set of financial statements. This statement also requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is dis- THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 56 37 played with the same prominence as other financial statements. This statement is effective for fiscal years beginning after December 15, 1997. Although earlier application is permitted, BancGroup has chosen not to adopt early. Reclassification of financial statements for earlier periods provided for comparative purposes is required. In June 1997, the Financial Accounting Standards Board also issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," which establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. This statement also establishes standards for related disclosures about products and services, geographic areas, and major customers. This statement requires the reporting of financial and descriptive information about an enterprise's reportable operating segments. This statement is effective for financial statements for periods beginning after December 15, 1997. In the initial year of application, comparative information for earlier years is to be restated. Pursuant to SFAS No. 131, BancGroup will report two segments: commercial banking and mortgage banking. 2. BUSINESS COMBINATIONS BancGroup recently completed the following business combinations with other financial institutions. The balances reflected are as of the date of consummation.
(DOLLARS IN THOUSANDS) ACCOUNTING DATE BANCGROUP CASH TOTAL FINANCIAL INSTITUTIONS TREATMENT CONSUMMATED SHARES PAID (2) ASSETS - ----------------------------------------------------------------------------------------------------------------------------- 1995 Colonial Mortgage Company (AL) Pooling of interests 02/17/95 4,545,454 $ 71,000 Brundidge Banking Company (AL) Purchase 03/31/95 532,868 56,609 Mt. Vernon Financial Corp. (GA) Purchase 10/20/95 1,043,440 217,967 Farmers & Merchants Bank (AL) Purchase 11/03/95 513,686 $ 3,000 56,050 - ----------------------------------------------------------------------------------------------------------------------------- 1996* Commercial Bancorp of Georgia, Inc. (GA) Pooling of interests 07/03/96 2,306,460 232,555 Southern Banking Corporation (FL) Pooling of interests 07/03/96 2,858,494 232,461 Dothan Federal Savings Bank (AL) Purchase 07/08/96 154,690 2,600 48,366 - ----------------------------------------------------------------------------------------------------------------------------- 1997 Jefferson Bancorp, Inc. (FL) Pooling of interests 01/03/97 3,854,952 472,732 Tomoka Bancorp, Inc. (FL) Pooling of interests(1) 01/03/97 661,992 76,700 First Family Financial Corp. (FL) Purchase 01/09/97 330,564 6,492 167,300 D/W Bankshares, Inc. (GA) Pooling of interests 01/31/97 1,016,548 138,686 Shamrock Holdings, Inc. (AL) Purchase 03/05/97 11,813 54,500 Fort Brooke Bancorporation (FL) Pooling of interests 04/22/97 1,599,973 208,800 Great Southern Bancorp (FL) Pooling of interests(1) 07/01/97 927,811 121,009 First Commerce Banks of Florida, Inc. (FL) Purchase 07/01/97 685,695 97,093 Dadeland BancShares, Inc. (FL) Purchase 09/15/97 38,000 169,946 First Independence Bank of Florida (FL) Pooling of interests(1) 10/01/97 503,932 65,048 - -----------------------------------------------------------------------------------------------------------------------------
(1) Due to the immaterial impact on BancGroup's Financial Statements, prior years have not been restated to include these poolings of interests. (2) Does not include immaterial amounts paid in lieu of fractional shares. * On April 19, 1996, BancGroup purchased certain assets totaling $31,428,000 and assumed certain liabilities, primarily deposits, totaling $30,994,000 of the Enterprise, Alabama branch of First Federal Bank. In addition to the combinations shown above, BancGroup has closed or has plans to close the following combinations since December 31, 1997. The balances reflected are as of December 31, 1997. The following business combinations have not been reflected in the financial statements at December 31, 1997.
(DOLLARS IN THOUSANDS) ACCOUNTING DATE BANCGROUP OTHER TOTAL FINANCIAL INSTITUTIONS TREATMENT CONSUMMATED SHARES CONSIDERATION(1) ASSETS - --------------------------------------------------------------------------------------------------------------------------------- United American Holding Corp. (FL) Pooling of interests 02/02/98 2,113,206 $275,263 ASB Bancshares, Inc. (AL) Purchase 02/05/98 467,257 $7,725(2) 158,656 First Central Bank (FL) Pooling of interests 02/11/98 688,684 62,897 South Florida Banking Corp. (FL) Pooling of interests 02/12/98 1,932,229 255,769 Commercial Bank of Nevada (NV) Pooling of interests Pending 842,157 120,108
(1) Does not include immaterial amounts paid in lieu of fractional shares. (2) Represents subordinated debentures. THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 57 38 The combination with Colonial Mortgage Company ("CMC") in 1995 was accounted for using a method of accounting similar to a pooling of interests. The 1996 combinations with Southern and Commercial and the 1997 combinations with Jefferson, Bankshares and Fort Brooke were accounted for using the pooling-of-interests method. Accordingly, all financial statement amounts have been restated to reflect the financial condition and results of operations as if these combinations had occurred at the beginning of the earliest period presented. The 1997 combinations with Tomoka Bancorp, Inc., Great Southern Bancorp and First Independence Bank of Florida were accounted for using the pooling-of-interests method, however, due to immateriality, the prior year financial statements were not restated. The remaining business combinations were accounted for as purchases, and the operations and income of the combined institutions are included in the income of BancGroup from the date of purchase. The proforma impact of the purchase method business combinations on BancGroup's financial statements for periods prior to acquisition is not significant. The following is summary operating information for BancGroup showing the effect of the business combinations described in the preceding paragraphs (years prior to consummation).
AS ORIGINALLY EFFECT OF CURRENTLY (IN THOUSANDS) REPORTED POOLINGS REPORTED ===================================================================== 1996: Net interest income $169,678 $33,011 $202,689 Noninterest income 65,982 4,906 70,888 Net income 53,608 (3,394) 50,214 1995: Net interest income 118,442 52,901 171,343 Noninterest income 45,982 14,545 60,527 Net income 38,794 7,671 46,465 =====================================================================
3. SECURITIES The carrying and market values of investment securities are summarized as follows:
INVESTMENT SECURITIES 1997 1996 ---------------------------------------------------------------------------------------------- AMORTIZED UNREALIZED UNREALIZED MARKET Amortized Unrealized Unrealized Market (IN THOUSANDS) COST GAINS LOSSES VALUE Cost Gains Losses Value =========================================================================================================================== U.S. Treasury securities and obligations of U.S. government agencies $145,768 $ 883 $ (67) $146,584 $171,176 $1,699 $ (140) $172,735 Mortgage-backed securities 72,155 754 (634) 72,275 76,268 616 (883) 76,001 Obligations of state and political subdivisions 44,566 1,311 (9) 45,868 45,912 1,056 (55) 46,913 Other 1,741 115 (17) 1,609 6,786 74 (214) 6,646 - --------------------------------------------------------------------------------------------------------------------------- Total $264,230 $2,833 $(727) $266,336 $300,142 $3,445 $(1,292) $302,295 ===========================================================================================================================
The carrying and market values of securities available for sale are summarized as follows:
SECURITIES AVAILABLE FOR SALE 1997 1996 ---------------------------------------------------------------------------------------------- AMORTIZED UNREALIZED UNREALIZED MARKET Amortized Unrealized Unrealized Market (IN THOUSANDS) COST GAINS LOSSES VALUE Cost Gains Losses Value =========================================================================================================================== U.S. Treasury securities and obligations of U.S. government agencies $244,154 $1,581 $ (469) $245,266 $262,775 $1,208 $(1,641) $262,342 Mortgage-backed securities 216,316 1,751 (1,335) 216,732 177,999 1,619 (1,280) 178,338 Obligations of state and political subdivisions 17,045 362 (4) 17,403 13,910 166 (93) 13,983 Other 4,957 961 (1) 5,917 6,895 907 (243) 7,559 - --------------------------------------------------------------------------------------------------------------------------- Total $482,472 $4,655 $(1,809) $485,318 $461,579 $3,900 $(3,257) $462,222 ===========================================================================================================================
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 58 39 The market values of obligations of states and political subdivisions were established with the assistance of an independent pricing service. They were based on available market data reflecting transactions of relatively small size and not necessarily indicative of the prices at which large amounts of particular issues could be readily sold or purchased. Included within securities available for sale is $42,686,000 and $39,011,000 in Federal Home Loan Bank stock at December 31, 1997 and 1996, respectively. Securities with a carrying value of approximately $589,843,000 and $529,423,000 at December 31, 1997 and 1996 respectively, were pledged for various purposes as required or permitted by law. Gross gains of $413,000, $239,000 and $764,000 and gross losses of $41,000, $116,000 and $166,000 were realized on sales of securities for 1997, 1996, and 1995, respectively. The amortized cost and market value of debt securities at December 31, 1997, by contractual maturity, are as follows. Expected maturities differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Securities Available Investment Securities For Sale AMORTIZED MARKET AMORTIZED MARKET (IN THOUSANDS) COST VALUE COST VALUE ========================================================================= Due in one year or less $ 61,642 $ 61,843 $ 25,032 $ 25,081 Due after one year through five years 110,393 111,223 129,565 130,130 Due after five years through ten years 15,558 16,190 49,173 49,817 Due after ten years 4,482 4,805 18,494 18,865 - ------------------------------------------------------------------------- 192,075 194,061 222,264 223,893 Mortgage-backed securities 72,155 72,275 216,316 216,732 - ------------------------------------------------------------------------- Total $264,230 $266,336 $438,580 $440,625 =========================================================================
4. LOANS A summary of loans follows:
(IN THOUSANDS) 1997 1996 =================================================================== Commercial, financial, and agricultural $ 612,499 $ 589,418 Real estate--commercial 1,379,845 1,033,346 Real estate--construction 622,726 460,537 Real estate--mortgage 2,194,003 1,801,703 Installment and consumer 300,456 278,600 Other 68,089 55,883 - ------------------------------------------------------------------ Subtotal 5,177,618 4,219,487 Unearned income (692) (3,309) - ------------------------------------------------------------------ Total $5,176,926 $4,216,178 ==================================================================
BancGroup's lending is concentrated throughout Alabama, southern Tennessee, central Georgia and central, southwest and south Florida, and repayment of these loans is in part dependent upon the economic conditions in the respective regions of the states. Management does not believe the loan portfolio contains concentrations of credits either geographically or by borrower which would expose BancGroup to unacceptable amounts of risk. Management continually evaluates the potential risk in all segments of the portfolio in determining the adequacy of the allowance for possible loan losses. Other than concentrations of credit risk in commercial real estate and residential real estate loans in general, management is not aware of any significant concentrations. BancGroup evaluates each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by BancGroup upon extension of credit, is based on management's credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, residential houses and income-producing commercial properties. No additional credit risk exposure, relating to outstanding loan balances, exists beyond the amounts shown in the consolidated statement of condition at December 31, 1997. In the normal course of business, loans are made to officers, directors, principal shareholders and to companies in which they own a significant interest. Loan activity to such parties with an aggregate loan balance of more than $60,000 during the year ended December 31, 1997 are summarized as follows:
(IN THOUSANDS) Balance Balance 1/1/97 Additions Repayments 12/31/97 - ------------------------------------------------------------------- $46,634 41,683 54,133 $34,184 - -------------------------------------------------------------------
At December 31, 1997 and 1996, the recorded investment in loans for which impairment has been recognized totaled $5,020,000 and $4,303,000, respectively, and these loans had a corresponding valuation allowance of $3,071,000 and $2,673,000, respectively. The impaired loans were measured for impairment based primarily on the value of underlying collateral. For the years ended December 31, 1997 and 1996, the average recorded investment in impaired loans was approximately $3,592,000 and $3,080,000. BancGroup recognized approximately $323,000 and $276,000 of interest on impaired loans during the portion of the year that they were impaired in 1997 and 1996, respectively. BancGroup uses several factors in determining if a loan is impaired. Generally, nonaccrual loans as well as loans classified by internal loan review are reviewed for impairment. The internal asset classification procedures include a thorough review of significant loans and lending relationships and include the accumulation of related data. This data includes loan payment status, borrower's financial data, collateral value and borrower's operating factors such as cash flows, operating income or loss, etc. THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 59 40 5. ALLOWANCE FOR POSSIBLE LOAN LOSSES An analysis of the allowance for possible loan losses is as follows:
(IN THOUSANDS) 1997 1996 1995 ================================================================= Balance, January 1 $53,443 $46,917 $42,527 Addition due to acquisitions 6,872 618 1,129 Provision charged to income 13,026 12,545 8,986 Loans charged off (15,298) (11,850) (8,488) Recoveries 4,139 5,213 2,763 - ----------------------------------------------------------------- Balance, December 31 $62,182 $53,443 $46,917 =================================================================
6. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK BancGroup is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financial needs of its customers. These financial instruments include loan commitments and standby letters of credit and obligations to deliver and sell mortgage loans and involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the financial statements. BancGroup's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for loan commitments, standby letters of credit and obligations to deliver and sell mortgage loans is represented by the contractual amount of those instruments. BancGroup uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. BancGroup has no significant concentrations of credit risk with any individual counterparty to originate loans. The total amounts of financial instruments with off-balance sheet risk as of December 31, 1997 and 1996 are as follows:
CONTRACT AMOUNT ----------------------- (IN THOUSANDS) 1997 1996 - ----------------------------------------------------------------- Financial instruments whose contract amounts represent credit risk: Loan commitments $1,230,459 $726,120 Standby letters of credit 52,925 48,851 Mortgage sales commitments 121,911 193,970
Since many of the loan commitments may expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. The credit risk involved in issuing letters of credit and funding loan commitments is essentially the same as that involved in extending loan facilities to customers. Obligations to sell loans at specified dates (typically within ninety days of the commitment date) and at specified prices are intended to hedge the interest rate risk associated with the time period between the initial offer to lend and the subsequent sale to a permanent investor. Risks arise from changes in interest rates. Changes in the market value of the sales commitments are included in the measurement of the gain or loss on mortgage loans held for sale. The current market value of these commitments was $120,762,000 and $194,858,000 at December 31, 1997 and 1996, respectively. 7. PREMISES AND EQUIPMENT Premises and equipment are summarized as follows:
(IN THOUSANDS) 1997 1996 ================================================================= Land $ 27,088 $ 22,840 Bank premises 81,871 64,884 Equipment 82,952 66,227 Leasehold improvements 16,959 14,585 Construction in progress 12,126 2,554 Automobiles 682 404 - ----------------------------------------------------------------- Total 221,678 171,494 Less accumulated depreciation and amortization 92,090 77,497 - ----------------------------------------------------------------- Premises and equipment, net $129,588 $ 93,997 =================================================================
8. SHORT-TERM BORROWINGS Short-term borrowings are summarized as follows:
(IN THOUSANDS) 1997 1996 1995 ================================================================== Federal funds purchased and securities sold under repurchase agreements $252,729 $127,112 $152,505 FHLB borrowings 645,000 715,000 465,000 Other short-term borrowings 24,040 2,017 1,141 - ------------------------------------------------------------------ Total $921,769 $844,129 $618,646 ==================================================================
BancGroup's Parent Company had outstanding term notes (Note 9) of which the current portion, $0 and $1,033,000, is included in other short-term borrowings at December 31, 1997 and 1996, respectively. In 1996, BancGroup entered into a line of credit with a financial institution totaling $35 million of which the current portion, $10,000,000 and $0, is included in other short-term borrowings at December 31, 1997 and 1996, respectively (Note 9). BancGroup had a reverse repurchase agreement outstanding in the amount of $12 million at December 31, 1997, which is included in other short-term borrowings. This debt is directly related to an asset of $12 million in securities purchased under resale agreement with another financial institution. BancGroup is a member of the Federal Home Loan Bank (FHLB). Based on its investment in the FHLB and other factors at December 31, 1997, BancGroup can borrow up to $1.5 billion from the FHLB on either a short or long-term basis. At December 31, 1997, $656 million was outstanding of which $9.8 million is included in long term debt with the remaining portion included in other THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 60 41 short-term borrowings. An additional unused credit of $768 million available with the FHLB. FHLB has a blanket lien on BancGroup's 1-4 family mortgage loans in the amount of the outstanding debt. Colonial Bank has a warehouse line of credit with $225 million of availability from FHLB, of which none was outstanding at December 31, 1997. This warehouse line is collateralized by mortgage loans held for sale. Additional details regarding short-term borrowings are shown below:
(IN THOUSANDS) 1997 1996 1995 ===================================================== Average amount outstanding during the year $760,125 $713,496 $505,801 Maximum amount outstanding at any month-end 921,769 885,765 643,698 Weighted average interest rate: During year 5.60% 5.43% 6.00% End of year 5.96% 5.53% 5.68% ======================================================
9. LONG-TERM DEBT Long-term debt is summarized as follows:
(IN THOUSANDS) 1997 1996 =============================================================== 7 1/2% Convertible Subordinated Debentures $ 4,893 $ 7,187 7% Convertible Subordinated Debentures 1,195 1,425 Trust Preferred Securities 70,000 -- Term Note -- 14,116 FHLB Advances 9,831 10,809 REMIC Bonds 4,333 5,536 Other -- 19 - --------------------------------------------------------------- Total $90,252 $39,092 ===============================================================
The 7 1/2% Convertible Subordinated Debentures due March 31, 2011 ("1986 Debentures") issued in 1986 are convertible at any time into shares of BancGroup Common Stock, at the conversion price of $14.00 principal amount of 1986 Debentures, subject to adjustment upon the occurrence of certain events, for each share of stock received. The 1986 Debentures are redeemable at the option of BancGroup at the face amount plus accrued interest. In the event all of the remaining 1986 Debentures are converted into shares of BancGroup Common Stock in accordance with the 1986 Indenture, approximately 349,500 shares of such Common Stock would be issued. The 7 % Convertible Subordinated Debentures due December 31, 2004 ("1994 Debentures"), were issued by D/W Bankshares prior to being merged into BancGroup. The 1994 Debentures are convertible into BancGroup Common Stock, at the conversion price of $15.16 principal amount of the 1994 Debentures, subject to adjustment upon occurrence of certain events, for each share of stock received. The 1994 Debentures cannot be redeemed by BancGroup before January 1, 1998. In the event all of the remaining 1986 Debentures are converted into shares of BancGroup Common Stock in accordance with the 1994 Indenture, approximately 78,800 shares of such Common Stock would be issued. On January 29, 1997, BancGroup issued, through a special purpose trust, $70 million of Trust Preferred Securities. The securities bear interest at 8.92% and are subject to redemption by BancGroup, in whole or in part at any time after January 29, 2007 until maturity in January 2017. Circumstances are remote that redemption will occur prior to maturity. The securities are subordinated to substantially all of BancGroup's indebtedness. The subordinated debentures and Trust Preferred Securities described above are subordinate to substantially all remaining liabilities of BancGroup. BancGroup had long-term Federal Home Loan Bank (FHLB) Advances outstanding of $9,831,000 and $10,809,000 at December 31, 1997 and 1996, respectively. These advances bear interest rates of 5.32% to 7.53% and mature from 1999 to 2011. In 1996, BancGroup transferred the outstanding balances of a term note and line of credit to a new term note. The 1996 term note had $15,149,000 outstanding at December 31, 1996. (Also see Note 8.) The 1996 term note was payable in annual installments of $1,033,000 with the balance due in 2001. In January 1997, the new term note was paid in full. The repayment was funded with a portion of the proceeds from the Trust Preferred Securities offering discussed above. In addition, BancGroup entered into a new line of credit with the same financial institution as discussed in Note 8. The term note and the line of credit bear interest at a rate of 1.5% above LIBOR. All of the capital stock of BancGroup's subsidiary, Colonial Bank, is pledged as collateral. The agreements contain restrictive covenants which, among other things, limit the sale of assets, incurrence of additional indebtedness, repurchase of BancGroup stock, and requires BancGroup to maintain certain specified financial ratios. BancGroup, with the acquisition of First AmFed in 1993, also assumed the real estate mortgage investment conduit (REMIC) bonds through a conduit, Service Financial Corporation, a subsidiary of Colonial Bank. These bonds were series A (four classes) with an original principal amount of $28,123,000 and a coupon interest rate of 7.875%. As of December 31, 1997, only the Class A-4 bonds due September 1, 2017 remain outstanding with an outstanding balance of $4,333,000 and are collateralized by FNMA mortgaged-backed securities with a carrying value of $4,523,000. The collections on these securities are used to pay interest and principal on the bonds. At December 31, 1997, long-term debt, including the current portion, is scheduled to mature as follows:
(IN THOUSANDS) =============================================================== 1998 $ 1,345 1999 407 2000 94 2001 86 2002 95 Thereafter 89,020 - --------------------------------------------------------------- Total $91,047 ===============================================================
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 61 42 10. CAPITAL STOCK On January 15, 1997, BancGroup's Board of Directors declared a two-for-one stock split which was effected in the form of a 100 percent stock dividend distributed on February 11, 1997. The stated par value was not changed from $2.50. Accordingly, all prior period information has been restated to reflect the reclassification from additional paid in capital to common stock. Additionally, all share and per share amounts in earnings per share calculations have been restated to retroactively reflect the stock split. Effective February 21, 1995 the Class A Common Stock and the Class B Common Stock were reclassified into one class of stock called Common Stock, $2.50 par value, with equal rights for all shareholders. The Board of Directors is authorized to issue shares of the preference stock in one or more series, and in connection with such issuance, to establish the relative rights, preferences, and limitations of each such series. Stockholders of BancGroup may not act by written consent or call special meetings. 11. REGULATORY MATTERS AND RESTRICTIONS During 1997, BancGroup became a member of the Federal Reserve and merged its subsidiary banks into one bank, Colonial Bank. Dividends payable by national and state banks in any year, without prior approval of the appropriate regulatory authorities, are limited to the bank's net profits (as defined) for that year combined with its retained net profits for the preceding two years. Under these limitations, approximately $125 million of retained earnings plus certain 1998 earnings would be available for distribution to BancGroup, from its subsidiaries, as dividends in 1998 without prior approval from the respective regulatory authorities. Colonial Bank is required by law to maintain noninterest-bearing deposits with the Federal Reserve Bank to meet regulatory reserve requirements. At December 31, 1997, these deposits totaled $18 million. BancGroup and its subsidiary bank are subject to various regulatory capital requirements administered by the federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory--and possibly additional discretionary--actions by regulators that, if undertaken, could have a direct material effect on BancGroup's financial position. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, BancGroup and its subsidiary bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. BancGroup's and its subsidiary bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require BancGroup and its subsidiary bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). Management believes, as of December 31, 1997 and 1996, that BancGroup and its subsidiary bank meet all capital adequacy requirements to which they are subject. As of December 31, 1997, the most recent notification from the Federal Deposit Insurance Corporation categorized BancGroup's subsidiary bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized BancGroup and its subsidiary bank must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed BancGroup's category. Actual capital amounts and ratios for BancGroup and its significant bank subsidiaries are also presented in the following table: THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 62 43
ACTUAL TO BE WELL CAPITALIZED -------------------------------------------------- (IN THOUSANDS) AMOUNT RATIO AMOUNT RATIO =============================================================================================== AS OF DECEMBER 31,1997 Total Capital (to Risk Weighted Assets) CONSOLIDATED $563,760 11.30% $498,769 >=10.0% Colonial Bank 560,793 11.12% 504,313 >=10.0% Tier I Capital (to Risk Weighted Assets) CONSOLIDATED 495,490 9.93% 299,261 >=6.0% Colonial Bank 498,611 9.89% 302,588 >=6.0% Tier I Capital (to average assets) CONSOLIDATED 495,490 7.47% 335,152 >=5.0% Colonial Bank 498,611 7.45% 334,635 >=5.0% AS OF DECEMBER 31,1996 Total Capital (to Risk Weighted Assets) CONSOLIDATED $431,099 10.66% $404,401 >=10.0% Colonial Bank Alabama 305,015 10.47% 291,391 >=10.0% Colonial Bank Florida 76,164 11.27% 67,584 >=10.0% Colonial Bank Georgia 52,632 12.51% 42,080 >=10.0% Tier I Capital (to Risk Weighted Assets) CONSOLIDATED 371,901 9.20% 242,641 >=6.0% Colonial Bank Alabama 268,349 9.21% 174,834 >=6.0% Colonial Bank Florida 67,515 9.99% 40,551 >=6.0% Colonial Bank Georgia 45,872 10.90% 25,248 >=6.0% Tier I Capital (to average assets) CONSOLIDATED 371,901 6.77% 275,858 >=5.0% Colonial Bank Alabama 268,349 6.65% 201,772 >=5.0% Colonial Bank Florida 67,515 7.11% 47,504 >=5.0% Colonial Bank Georgia 45,872 7.32% 31,339 >=5.0%
12. LEASES BancGroup and its subsidiaries have entered into certain noncancellable leases for premises and equipment used in connection with its operations. The majority of these noncancellable lease agreements contain renewal options for varying periods at the same or renegotiated rentals, and several contain purchase options at fair value. Future minimum lease payments under all noncancellable operating leases with initial or remaining terms (exclusive of renewal options) of one year or more at December 31, 1997 were as follows:
(IN THOUSANDS) =================================================================== 1998 $ 7,203 1999 6,170 2000 5,158 2001 3,890 2002 3,038 Thereafter 16,155 - ------------------------------------------------------------------- Total $41,614 ===================================================================
Rent expense for all leases amounted to $10,975,000 in 1997, $9,409,000 in 1996 and $8,448,000 in 1995. 13. EMPLOYEE BENEFIT PLANS BancGroup and the majority of its subsidiaries are participants in a pension plan with certain other related companies. This plan covers most employees who have met certain age and length of service requirements. BancGroup's policy is to contribute annually an amount that can be deducted for federal income tax purposes using the frozen entry age actuarial method. Actuarial computations for financial reporting purposes are based on the projected unit credit method. For purposes of determining the actuarial present value of the projected benefit obligation, the weighted average discount rate was 7.25% for 1997, 7.75% for 1996 and 7.25% for 1995. The rate of increase in future compensation levels was 4.25% for 1997, 4.75% for 1996 and 4.00% for 1995. The expected long-term rate of return on assets was 9% for 1997, 1996, and 1995. THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 63 44 Employee pension benefit plan status at December 31:
(IN THOUSANDS) 1997 1996 ================================================================== Actuarial present value of benefit obligations: Accumulated benefit obligation $ 11,869 $ 8,623 Vested benefit obligation $ 11,116 $ 8,191 Projected benefit obligation for service rendered to date $ 17,348 $ 13,279 Plan assets at fair value $ 18,486 $ 13,729 - ------------------------------------------------------------------ Plan assets over projected benefit obligation 1,138 450 Unrecognized net gain (3,824) (2,549) Unrecognized prior service cost 57 62 Unrecognized net transition asset over 19 years (39) (45) - ------------------------------------------------------------------ Accrued pension cost $ (2,668) $ (2,082) ==================================================================
(IN THOUSANDS) 1997 1996 1995 ================================================================== Net pension cost included the following components: Service cost $ 1,407 $ 1,099 $ 873 Interest cost 1,199 1,029 962 Actual return on plan assets (1,245) (1,463) (851) Net amortization and deferral (1) 405 (6) - ------------------------------------------------------------------ Net pension cost $ 1,360 $ 1,070 $ 978 ==================================================================
At December 31, 1997 and 1996, the pension plan assets included investments of 82,260 and 45,260 shares of BancGroup Common Stock representing 14% and 7% of pension plan assets, respectively. At December 31, 1997, BancGroup Common Stock included in pension plan assets had a cost and market value of $616,429 and $2,832,869, respectively. Pension plan assets are distributed approximately 7% in U.S. Government and agency issues, 22% in Corporate bonds, 63% in equity securities (including BancGroup Common Stock) and 8% in money market funds. BancGroup also has an incentive savings plan (the "Savings Plan") for all of the employees of BancGroup and its subsidiaries. The Savings Plan provides certain retirement, death, disability and employment benefits to all eligible employees and qualifies as a deferred arrangement under Section 401(k) of the Internal Revenue Code. Participants in the Savings Plan make basic contributions and may make supplemental contributions to increase benefits. BancGroup contributes a minimum of 50% of the basic contributions made by the employees and may make an additional contribution from profits on an annual basis. An employee's interest in BancGroup's contributions becomes 100% vested after five years of participation in the Savings Plan. Participants have options as to the investment of their Savings Plan funds, one of which includes purchase of Common Stock of BancGroup. Charges to operations for this plan and similar plans of combined banks amounted to $1,191,000, $900,000 and $794,000 for 1997, 1996, and 1995, respectively. Prior to the merger, Jefferson maintained a retirement and severance plan for certain senior officers and directors of Jefferson. The plan provided cash payments to the effected personnel in the event of retirement or a change in control (whether or not their employment is terminated). During the years ended December 31, 1996 and 1995, expense recognized under the plan totaled $4,333,000 and $615,000, respectively. 14. STOCK PLANS The 1992 Incentive Stock Option Plan ("the 1992 Plan") provides an incentive to certain officers and key management employees of BancGroup and its subsidiaries. Options granted under the 1992 Plan must be at a price not less than the fair market value of the shares at the date of grant. All options expire no more than ten years from the date of grant, or three months after an employee's termination. An aggregate of 1,100,000 shares of Common Stock are reserved for issuance under the 1992 Plan. At December 31, 1997 and 1996, 702,128 and 772,334, respectively, remained available for the granting of options under the 1992 Plan. The 1992 Nonqualified Stock Option Plan ("the 1992 Nonqualified Plan") provides an incentive to directors, officers and employees of BancGroup and its subsidiaries. Options granted under the 1992 Nonqualified Plan must be at a price not less than 85% of the fair market value of the shares at the date of grant. All options expire no more than ten years after the date of grant, or three months after an employee's termination. An aggregate of 1,600,000 shares of Common Stock are reserved for issuance under the 1992 Nonqualified Plan. At December 31,1997 and 1996, 1,407,000 and 1,465,500 shares, respectively remained available for the granting of options under the 1992 Nonqualified Plan. Prior to 1992, BancGroup had both a qualified incentive stock option plan ("Plan") under which options were granted at a price not less than fair market value and a nonqualified stock option plan ("Nonqualified Plan") under which options were granted at a price not less than 85% of fair market value. All options under the plans expire ten years from the date of grant, or three months after the employee's termination. Although options previously granted under these plans may be exercised, no further options may be granted. Pursuant to the various business combinations, BancGroup assumed qualified stock options and non-qualified stock options according to the respective exchange ratios. Certain of the options issued during 1997 and 1996 under the 1992 Nonqualified Plan and the 1992 Plan have vesting requirements. The option recipients are required to remain in the employment of BancGroup (subject to certain exemptions) for periods of between one and five years to fully vest in the options granted. These options become exercisable on a pro-rata basis over a period of one to five years. Following is a summary of the transactions in Common Stock under these plans for the years ended December 31, 1997, 1996 and 1995. THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 64 45
QUALIFIED PLANS(1) NONQUALIFIED PLANS(1) - ---------------------------------------------------------------------------------------------------------- WEIGHTED AVERAGE WEIGHTED AVERAGE SHARES EXERCISE PRICE SHARES EXERCISE PRICE ========================================================================================================== Outstanding at December 31, 1994 747,949 $ 7.393 1,669,174 $ 5.616 Granted (at $8.445-$13.495 per share) 8,482 9.571 51,481 8.992 Exercised (at $3.08-$8.74 per share) (225,584) 6.499 (29,974) 7.246 Cancelled (at $6.26 per share) (5,986) 6.260 -- -- - ---------------------------------------------------------------------------------------------------------- Outstanding at December 31, 1995 524,861 $ 7.825 1,690,681 $ 5.690 Granted (at $14.580-$19.94 per share) 292,166 17.895 90,000 14.714 Exercised (at $3.08-$9.12 per share) (98,097) 8.216 (407,723) 5.878 Cancelled (at $11.16 per share) (62,632) 11.160 -- -- - ---------------------------------------------------------------------------------------------------------- Outstanding at December 31, 1996 656,298 $ 11.931 1,372,958 $ 6.226 Assumed in business combinations (at $6.20-$13.78 per share) 63,826 7.320 252,974 9.600 Granted (at $19.155-$27.72 per share) 113,100 22.954 58,500 21.218 Exercised (at $3.080-$17.315 per share) 308,681) 7.095 (361,208) 6.185 Cancelled (at $17.155-$27.20 per share) (42,894) 19.192 (1,614) 7.380 - --------------------------------------------------------------------------------------------------------- Outstanding at December 31, 1997 481,649 $ 16.362 1,321,610 $ 7.545 =========================================================================================================
(1) This table includes those plans assumed pursuant to various business combinations according to the respective exchange ratios. At December 31, 1997, the total shares outstanding and exercisable under these option plans were as follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE - ---------------------------------------------------------------------------------------------------------------- WEIGHTED WEIGHTED NUMBER AVERAGE AVERAGE AGGREGATE NUMBER AVERAGE AGGREGATE RANGE OF OUTSTANDING REMAINING EXERCISE OPTION EXERCISABLE EXERCISE OPTION EXERCISE PRICES AT 12/31/97 CONTRACTUAL LIFE PRICE PRICE AT 12/31/97 PRICE PRICE - ---------------------------------------------------------------------------------------------------------------- $3.08-$3.625 277,990 2.95 years $3.124 $868,317 277,990 $3.124 $868,317 $3.725-$3.88 261,384 4.64 years 3.855 1,007,581 261,384 3.855 1,007,581 $5.740-$8.445 263,060 5.28 years 6.855 1,803,340 263,060 6.855 1,803,340 $8.685-$9.12 323,964 2.64 years 9.056 2,933,683 318,354 9.062 2,884,962 $9.25-$10.48 119,063 4.60 years 9.625 1,145,957 119,063 9.625 1,145,957 $11.70-$17.315 324,198 7.78 years 15.601 5,057,827 243,981 15.090 3,681,691 $19.155-$27.72 233,600 9.23 years 21.557 5,035,653 16,000 20.931 334,900 - ---------------------------------------------------------------------------------------------------------------- Total 1,803,259 4.77 years $9.900 $17,852,358 1,499,832 $7,819 $11,726,748 ================================================================================================================
On January 1, 1996 BancGroup adopted Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation" (SFAS 123). As permitted by SFAS 123, BancGroup has chosen to apply APB Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related Interpretations in accounting for its Plans. Accordingly, no compensation cost has been recognized for options granted under the Incentive Plan. For the Nonqualified Plan, compensation expense is recognized for the difference between exercise price and fair market value of the shares at date of issue. Had compensation cost for BancGroup's Plans been determined based on the fair value at the grant dates for awards under the Plan, BancGroup's net income and net income per share would have been reduced to the pro forma amounts indicated below:
AS PRO REPORTED FORMA ============================================================== 1997 Net income $77,191 $76,665 Earnings per share (basic) $1.84 $1.82 1996 Net income $50,214 $49,209 Earnings per share (basic) $1.30 $1.27 1995 Net income $46,465 $46,261 Earnings per share (basic) $1.30 $1.30 - --------------------------------------------------------------
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 1997, 1996 and 1995, respectively: dividend yield of 3.11%, 3.15% and 3.15%; expected volatility of 23% for 1997 and 34% for both 1996 and 1995; risk-free interest rates of 6.46%, 6.04% and 6.63% for 1997, 1996 and 1995, respectively; and expected lives of ten years. The weighted average fair values of THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 65 46 options granted during 1997, 1996 and 1995 was $4.81, $6.51 and $4.78, respectively. In 1987, BancGroup adopted the Restricted Stock Plan for Directors ("Directors Plan") whereby directors of BancGroup and its subsidiary banks may receive Common Stock in lieu of cash director fees. The election to participate in the Directors Plan is made at the inception of the director's term except for BancGroup directors who make their election annually. Shares earned under the plan for regular fees are issued quarterly while supplemental fees are issued annually. All shares become vested at the expiration of the director's term. During 1997, 1996 and 1995, respectively, 31,082, 31,710 and 34,048 shares of Common Stock were issued under the Directors Plan, representing approximately $503,000, $328,000 and $326,000 in directors' fees for 1997, 1996 and 1995, respectively. In 1992, BancGroup adopted the Stock Bonus and Retention Plan to promote the long-term interests of BancGroup and its shareholders by providing a means for attracting and retaining officers, employees and directors by awarding Restricted Stock which shall vest 20% per year commencing on the first anniversary of the award. A total of $423,000, $171,000 and $0 in compensation expense was charged to operations under this plan for the years ended December 31, 1997, 1996 and 1995, respectively. During 1997, 1996 and 1995 the Company awarded 29,102, 50,000 and 50,000 shares, respectively, under the Stock Bonus and Retention Plan having weighted average fair value at grant date of $20.82, $19.37 and $16.25, respectively. An aggregate of 1,500,000 shares have been reserved for issuance under this Plan. There were 130,702 shares outstanding of which 28,960 shares were vested at December 31, 1997. In 1994, BancGroup adopted the Employee Stock Purchase Plan which provides employees of BancGroup, who work in excess of 29 hours per week, with a convenient way to become shareholders of BancGroup. The participant authorizes a regular payroll deduction of not less than $10 or not more than 10% of salary. The participant may also contribute whole dollar amounts of not less than $100 or not more than $1,000 each month toward the purchase of the stock at market price. There are 300,000 shares authorized for issuance under this Plan. There were 39,098 shares issued and outstanding under this Plan at December 31, 1997. 15. CONTINGENCIES BancGroup and its subsidiaries are from time to time defendants in legal actions from normal business activities. Management does not anticipate that the ultimate liability arising from litigation outstanding at December 31, 1997, will have a materially adverse effect on BancGroup's financial statements. 16. RELATED PARTIES Insurance coverage for credit life, and accident and health insurance is provided to customers of BancGroup's subsidiary bank by companies owned by a principal shareholder and a director of BancGroup. Premiums collected from customers and remitted to these companies on such insurance were approximately $976,000, $1,651,000, and $1,712,000 in 1997, 1996 and 1995, respectively. BancGroup, Colonial Bank and CMC lease premises, including their principal corporate offices, and airplane services from companies owned partly or wholly by principal shareholders of BancGroup. Amounts paid under these leases and agreements approximated $3,475,000, $3,252,000 and $3,100,000 in 1997, 1996 and 1995, respectively. During 1997, 1996 and 1995, BancGroup and its subsidiaries paid or accrued fees of approximately $1,659,000, $1,475,000 and $1,306,000, respectively, for legal services required of law firms in which a partner of the firm serves on the Board of Directors. 17. OTHER EXPENSE The following amounts were included in Other Expense:
(IN THOUSANDS) 1997 1996 1995 ========================================================== Stationery, printing, and supplies $ 5,060 $ 3,925 $ 3,651 Postage 3,315 2,701 2,288 Telephone 4,915 4,780 3,849 Insurance 1,766 2,123 1,778 Legal fees 3,363 2,846 2,511 Advertising and public relations 6,168 5,466 4,297 FDIC assessment 868 2,435 4,647 Other 30,839 27,602 27,351 - ---------------------------------------------------------- Total $56,294 $51,878 $50,372 ==========================================================
18. INCOME TAXES The components of income taxes were as follows:
(IN THOUSANDS) 1997 1996 1995 ========================================================== Currently payable: Federal $40,768 $26,391 $25,329 State 3,822 2,311 2,396 Deferred 1,320 (1,398) (1,960) - ---------------------------------------------------------- Total $45,910 $27,304 $25,765 ==========================================================
The reasons for the difference between income tax expense and the amount computed by applying the statutory federal income tax rate to income before income taxes are as follows: THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 66 47
(IN THOUSANDS) 1997 1996 1995 ========================================================== Tax at statutory rate on income from operations $43,085 $27,118 $25,253 Add: State income taxes, net of federal tax benefit 2,687 1,903 1,599 Amortization of net purchase accounting adjustments 1,003 369 237 Other 757 636 926 - ---------------------------------------------------------- Total 47,532 30,026 28,015 ========================================================== Deduct: Nontaxable interest income 1,588 2,702 1,861 Dividends received deduction 34 16 252 Other -- 4 137 - ---------------------------------------------------------- Total 1,622 2,722 2,250 - ---------------------------------------------------------- TOTAL INCOME TAXES $45,910 $27,304 $25,765 ==========================================================
The components of BancGroup's net deferred tax asset as of December 31, 1997 and 1996, were as follows:
1997 1996 ========================================================== Deferred tax assets: Allowance for possible loan losses $20,046 $18,586 Pension accrual in excess of contributions 1,078 952 Accumulated amortization of mortgage servicing rights 1,348 2,384 Other real estate owned write-downs 1,187 1,435 Other liabilities and reserves 2,040 1,556 Accelerated tax depreciation 250 135 Other 2,027 2,236 - ---------------------------------------------------------- Total deferred tax asset 27,976 27,284 ========================================================== Deferred tax liabilities: Cumulative accretion/discount on bonds 1,097 428 Differences between financial reporting and tax bases of net assets acquired 477 962 Prepaid FDIC assessment 223 1 Loan loss reserve recapture 1,090 1,779 Unrealized gain on securities available for sale 620 121 Other 3,370 3,683 - ---------------------------------------------------------- Total deferred tax liability 6,877 6,974 ========================================================== Net deferred tax asset $21,099 $20,310 ==========================================================
The net deferred tax asset is included as a component of accrued interest and other assets in the Consolidated Statement of Condition. BancGroup did not establish a valuation allowance related to the net deferred tax asset due to taxes paid within the carryback period being sufficient to offset future deductions resulting from the reversal of these temporary differences. 19. EARNINGS PER SHARE BancGroup adopted SFAS No. 128, "Earnings Per Share" on December 31,1997. This statement requires all entities with complex capital structures to present a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. The following table reflects this reconciliation:
PER SHARE (IN THOUSANDS) INCOME SHARES AMOUNT ========================================================================= 1997 Basic EPS Net income $77,191 42,034 $ 1.84 Effect of Dilutive Securities Options 920 Convertible Debentures, net of taxes 295 482 - ------------------------------------------------------------------------- Diluted EPS $77,486 43,436 $ 1.78 ========================================================================= 1996 Basic EPS Net income $50,214 38,615 $ 1.30 Effect of Dilutive Securities Options 1,150 Convertible Debentures, net of taxes 445 620 - ------------------------------------------------------------------------- Diluted EPS $50,659 40,385 $ 1.25 ========================================================================= 1995 Basic EPS Net income $46,465 35,696 $ 1.30 Effect of Dilutive Securities Options 2,214 Convertible Debentures, net of taxes 1,075 1,511 - ------------------------------------------------------------------------- Diluted EPS $47,540 39,421 $ 1.21 =========================================================================
Subsequent to December 31, 1997, BancGroup consummated four business combinations (See Note 2) and issued a total of 5,201,376 shares and assumed 217,995 stock options. THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 67 48 20. FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: - - CASH AND CASH EQUIVALENTS -- For these short-term instruments, the carrying amount is a reasonable estimate of fair value. - - INVESTMENT SECURITIES AND SECURITIES AVAILABLE FOR SALE -- For debt securities and marketable equity securities held either for investment purposes or for sale, fair value equals quoted market price, if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities. - - MORTGAGE LOANS HELD FOR SALE -- For these short-term instruments, the fair value is determined from quoted current market prices. - - MORTGAGE SERVICING RIGHTS AND EXCESS SERVICING FEES -- Fair value is estimated by discounting future cash flows from servicing fees using discount rates that approximate current market rates. - - LOANS -- For loans, the fair value is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. - - DEPOSITS -- The fair value of demand deposits, savings accounts and certain money market deposits is the amount payable on demand at December 31, 1997 and 1996. The fair value of fixed-maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities. - - SHORT-TERM BORROWINGS -- Rates currently available to BancGroup for borrowings with similar terms and remaining maturities are used to estimate fair value of existing borrowings. - - LONG-TERM DEBT-- Rates currently available to BancGroup for debt with similar terms and remaining maturities are used to estimate fair value of existing debt. - - COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT -- The value of the unrecognized financial instruments is estimated based on the related fee income associated with the commitments, which is not material to BancGroup's financial statements at December 31, 1997 and 1996. The estimated fair values of BancGroup's financial instruments at December 31, 1997 and 1996 are as follows:
1997 1996 ================================================================ CARRYING FAIR CARRYING FAIR (IN THOUSANDS) AMOUNT VALUE AMOUNT VALUE ================================================================================================== Financial assets: Cash and short-term investments $ 273,412 $ 273,412 $ 261,200 $ 261,200 Securities available for sale 485,318 485,318 462,222 462,222 Investment securities 264,230 266,336 300,142 302,295 Mortgage loans held for sale 225,331 225,288 157,966 160,060 Mortgage servicing rights and excess servicing fees 141,800 163,948 107,797 152,064 Loans 5,176,926 4,216,178 Less: allowance for loan losses (62,182) (53,443) - -------------------------------------------------------------------------------------------------- Loans, net 5,114,744 5,200,427 4,162,735 4,226,028 - -------------------------------------------------------------------------------------------------- Total $ 6,504,835 $6,614,729 $ 5,452,062 $5,563,869 ================================================================================================== Financial liabilities: Deposits $ 5,255,830 $4,918,993 $ 4,299,721 $4,313,380 Short-term borrowings 921,769 919,114 844,129 844,129 Long-term debt 90,252 98,332 39,092 42,121 - -------------------------------------------------------------------------------------------------- Total $ 6,267,851 $5,936,439 $ 5,182,942 $5,199,630 ==================================================================================================
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 68 49 21. CONDENSED FINANCIAL INFORMATION OF THE COLONIAL BANCGROUP, INC. (PARENT COMPANY ONLY)
STATEMENT OF CONDITION December 31 ---------------------------- (IN THOUSANDS) 1997 1996 ==================================================================== ASSETS: Cash* $ 12,791 $ 1,040 Investment in subsidiaries* 565,560 424,128 Intangible assets 3,153 3,541 Other assets 5,166 4,565 - -------------------------------------------------------------------- Total assets $586,670 $433,274 ==================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY: Short-term borrowings $ 10,000 $ 1,033 Subordinated debt 76,088 8,612 Other long-term debt 14,116 Other liabilities 6,328 6,805 Shareholders' equity 494,254 402,708 - -------------------------------------------------------------------- Total liabilities and shareholders' equity $586,670 $433,274 ==================================================================== *Eliminated in consolidation
STATEMENT OF OPERATIONS Years Ended December 31 ------------------------------- (IN THOUSANDS) 1997 1996 1995 =================================================================== INCOME: Cash dividends from subsidiaries* $40,931 $16,470 $17,019 Interest and dividends on short-term investments* 850 203 111 Other income 2,466 2,210 1,430 - ------------------------------------------------------------------- Total income 44,247 18,883 18,560 =================================================================== EXPENSES: Interest 6,648 1,917 2,698 Salaries and employee benefits 1,252 3,447 754 Occupancy expense 346 347 298 Furniture and equipment expense 93 96 73 Amortization of intangible assets 388 442 459 Other expenses 4,472 5,434 4,753 - ------------------------------------------------------------------- Total expenses 13,199 11,683 9,035 =================================================================== Income before income taxes and equity in undistributed net income of subsidiaries 31,048 7,200 9,525 Income tax benefit 1,964 3,057 2,406 - ------------------------------------------------------------------- Income before equity in undistributed net income of subsidiaries 33,012 10,257 11,931 Equity in undistributed net income of subsidiaries* 44,179 39,957 34,534 - ------------------------------------------------------------------- Net income $77,191 $50,214 $46,465 ===================================================================
*Eliminated in consolidation THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 69 50 STATEMENT OF CASH FLOWS
Years Ended December 31 ------------------------------- (IN THOUSANDS) 1997 1996 1995 =================================================================== CASH FLOWS FROM OPERATING ACTIVITIES: Net income $77,191 $50,214 $46,465 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amorti- zation, and accretion 626 544 1,099 Increase in prepaids and other assets (659) (894) (2,460) Increase (decrease) in accrued income taxes 1,841 (65) 3,387 Increase in accrued expenses 2,360 538 1,735 Undistributed earnings of subsidiaries* (44,179) (39,957) (34,534) - ------------------------------------------------------------------- Total adjustments (40,011) (39,834) (30,773) - ------------------------------------------------------------------- Net cash provided by operating activities 37,180 10,380 15,692 - ------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (462) (124) (175) Purchase of securities -- -- (400) Proceeds from maturities of securities 406 -- -- Proceeds from sale of premises and equipment -- 3,000 538 Net investment in subsidiaries* (55,161) (867) (8,456) - ------------------------------------------------------------------- Net cash (used in) provided by investing activities (55,217) 2,009 (8,493) - ------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase in short-term borrowings (1,500) -- -- Proceeds from issuance of subordinated debt 70,000 -- 1,425 Proceeds from issuance of long-term debt -- -- 6,249 Proceeds from issuance of short-term debt 10,000 -- -- Repayment of long-term debt (15,149) (2,350) (1,000) Proceeds from issuance of common stock 7,281 3,318 2,406 Purchase of treasury stock (15,887) -- -- Dividends paid (24,957) (18,573) (12,329) Other, net 279 (61) - ------------------------------------------------------------------- Net cash provided by (used in) financing activities 29,788 (17,326) (3,310) - ------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents 11,751 (4,937) 3,889 Cash and cash equivalents at beginning of year 1,040 5,977 2,088 - ------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF YEAR* $12,791 $ 1,040 $ 5,977 =================================================================== Supplemental disclosure of cash flow information: Cash paid (received) during the year for: Interest $ 3,786 $ 1,874 $ 2,743 Income taxes (3,140) (2,493) (274) ===================================================================
*Eliminated in consolidation. THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 70 51 Colonial BancGroup, Inc. COMMON STOCK INFORMATION 97 MARKET PRICE OF AND DIVIDENDS DECLARED ON COMMON STOCK BancGroup's Common Stock is traded on the New York Stock Exchange under the symbol "CNB." This trading commenced on February 24, 1995. Prior to that time, BancGroup's Common Stock was traded on the over-the-counter market and was quoted on NASDAQ under the symbol "CLBGA." The following table indicates the high and low closing prices for Common Stock during 1996 and 1997.
SALE PRICE OF COMMON STOCK DIVIDENDS DECLARED ------------------- ON COMMON STOCK HIGH LOW (PER SHARE) - -------------------------------------------------------------------------------- 1996 1st Quarter Common ...................... $18 1/4 $15 $ .135 2nd Quarter Common ...................... 18 1/16 15 5/8 .135 3rd Quarter Common ...................... 17 15/16 15 5/8 .135 4th Quarter Common ...................... 20 1/8 17 3/8 .135 - -------------------------------------------------------------------------------- 1997 1st Quarter Common ...................... 24 18 2/3 .150 2nd Quarter Common ...................... 24 7/8 22 .150 3rd Quarter Common ...................... 29 3/16 24 1/4 .150 4th Quarter Common ...................... $35 1/16 $28 15/16 $ .150 ================================================================================
VOTING SECURITIES AND SHAREHOLDERS As of December 31, 1997 and 1996, BancGroup had outstanding 42,545,425 and 39,145,685, respectively, shares of Common Stock, with 7,938 and 5,747 shareholders of record. THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 71 52 Colonial BancGroup, Inc. STOCKHOLDER INFORMATION 97 CORPORATE OFFICES Colonial Financial Center One Commerce Street Montgomery, Alabama 36104 (334) 240-5000 ANNUAL MEETING The annual meeting of shareholders of The Colonial BancGroup, Inc. will be held on Wednesday, April 15, 1998, at 10:00 a.m., in the corporate offices. STOCK EXCHANGE LISTING Common Stock is traded on the New York Stock Exchange under symbol CNB. In many newspapers the stock is listed as ColBgp. DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN Owners of BancGroup Common Stock may participate in the Dividend Reinvestment and Common Stock Purchase Plan. Dividends are reinvested and additional shares purchased at 100% of the market price average, determined as provided in the plan. A quarterly dividend of $0.17 per share was declared on January 21, 1998, payable on February 10, 1998 to shareholders of record on February 3, 1998. Dividends have been paid every year since the company was founded in 1981. During those 16 years of uninterrupted dividend payments, the annual dividend rate has increased every year since 1990. For further information, plus a prospectus and enrollment card, contact: Sherri Schmidt The Colonial BancGroup, Inc. Dividend Reinvestment Plan P.O. Box 1108 Montgomery, Alabama 36101 (888) 843-0622 FORM 10-K Form 10-K is BancGroup's annual report filed with the Securities and Exchange Commission. A copy of this report is available by writing to: Sherri Schmidt The Colonial BancGroup, Inc. P.O. Box 1108 Montgomery, Alabama 36101 (888) 843-0622 TRANSFER AND DIVIDEND DISBURSING AGENT SunTrust Bank, Atlanta Stock Transfer Department P.O. Box 4625 Atlanta, Georgia 30302 (800) 568-3476 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES 72 EX-21 5 LIST OF SUBSIDIARIES 1 EXHIBIT 21 LIST OF SUBSIDIARIES OF THE REGISTRANT COLONIAL BANK, AN ALABAMA BANKING CORPORATION. THE COLONIAL BANCGROUP BUILDING CORPORATION, AN ALABAMA CORPORATION. COLONIAL CAPITAL II, A DELAWARE BUSINESS TRUST. DADELAND SOFTWARE SERVICES, A FLORIDA CORPORATION. EX-23.1 6 CONSENT OF COOPERS & LYBRAND L.L.P. 1 EXHIBIT 23.1 CONSENT OF COOPERS & LYBRAND L.L.P. CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of The Colonial BancGroup, Inc. listed below of our report dated February 27, 1998 on our audits of the consolidated financial statements of The Colonial BancGroup, Inc. and Subsidiaries, as of December 31, 1997 and 1996 and for each of the three years in the period ended December 31, 1997, which report is incorporated by reference in this Annual Report on Form 10-K for the year ended December 31, 1997. Registration Statements on Form S-3 Registration Numbers: 33-5665 333-25463 33-62071 Registration Statements on Form S-4 Registration Numbers: 333-26537 333-39277 333-32163 333-39267 333-39283 Registration Statements on Form S-8 Registration Numbers: 2-89959 33-63347 33-11540 33-78118 33-13376 333-10475 33-41036 333-11255 33-47770 Post-Effective Amendment No. 2 on Form S-8 to Registration Statements on Form S-4 Registration Numbers: 333-14703 333-16481 333-14883 333-20291 Montgomery, Alabama March 27, 1998 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 Robert E. Lowder, Young J. Boozer, III and W. Flake Oakley, IV, and each of them, his or her true and lawful attorney-in-fact and agent, with full power of substitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign on his or her behalf The Colonial BancGroup, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1997. Hereby executed by the following persons in the capacities indicated on January 21, 1998, in Montgomery, Alabama.
SIGNATURE TITLE --------- ----- /s/ ROBERT E. LOWDER Chairman of the Board, President and Chief - --------------------------------------------------- Executive Officer Robert E. Lowder Director - --------------------------------------------------- Lewis Beville Director - --------------------------------------------------- Young J. Boozer /s/ WILLIAM BRITTON Director - --------------------------------------------------- William Britton Director - --------------------------------------------------- Jerry J. Chesser /s/ AUGUSTUS K. CLEMENTS, III Director - --------------------------------------------------- Augustus K. Clements, III /s/ ROBERT CRAFT Director - --------------------------------------------------- Robert Craft /s/ PATRICK F. DYE Director - --------------------------------------------------- Patrick F. Dye Director - --------------------------------------------------- Clinton Holdbrooks Director - --------------------------------------------------- D.B. Jones Director - --------------------------------------------------- Harold D. King /s/ JOHN ED MATHISON Director - --------------------------------------------------- John Ed Mathison Director - --------------------------------------------------- Milton McGregor
2 2
SIGNATURE TITLE --------- ----- /s/ JOHN C.H. MILLER, JR. Director - --------------------------------------------------- John C. H. Miller, Jr. Director - --------------------------------------------------- Joe D. Mussafer /s/ WILLIAM E. POWELL, III Director - --------------------------------------------------- William E. Powell, III /s/ DONALD J. PREWITT Director - --------------------------------------------------- Donald J. Prewitt Director - --------------------------------------------------- Jack H. Rainer /s/ JIMMY RANE Director - --------------------------------------------------- Jimmy Rane /s/ FRANCES E. ROPER Director - --------------------------------------------------- Frances E. Roper Director - --------------------------------------------------- Simuel Sippial Director - --------------------------------------------------- Ed V. Welch
3 EX-27 8 FINANCIAL DATA SCHEDULE
9 1,000 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 254,252 19,160 0 0 485,318 264,230 266,336 5,176,926 62,182 6,850,828 5,255,830 921,769 88,723 90,252 0 0 106,364 387,890 6,850,828 442,741 54,528 718 497,987 199,623 249,488 248,499 13,026 372 200,131 123,101 123,101 0 0 77,191 1.84 1.78 4.31 23,398 7,028 952 129,000 53,443 15,298 4,139 62,182 62,182 0 1,126
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