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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
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 March 1, 2000 based on the closing price of $8.9375 per
share for Common Stock was $919,285,215. (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 March 1, 2000 were 111,591,524.
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT PART OF FORM 10-K
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Portions of Definitive Proxy Statement Part III
for 1999 Annual Meeting as specifically
referred to herein.
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PART I
ITEM 1. BUSINESS
GENERAL
The Registrant, The Colonial BancGroup, Inc.("BancGroup") is a Delaware
corporation incorporated in 1974 and reorganized in 1981 as 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 Colonial Bank, its banking subsidiary in
Alabama, Colonial Bank ("Colonial Bank").
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.
BANK SUBSIDIARY
Colonial Bank has 127 branches in Alabama, 80 branches in Florida, 16
branches in Georgia, five branches in Tennessee, two branches in Texas and eight
branches in Nevada. In addition, Colonial Bank maintains loan production offices
in Idaho and Washington. 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 Bank services or
sub-services approximately $15.2 billion in residential loans for third parties
in 43 states. Colonial Bank's retail mortgage operation offers conventional,
government and jumbo loan products directly to borrowers. Colonial Bank offers a
wholesale government program from its home office in Montgomery, Alabama.
Colonial Bank has relationships with all housing agencies such as VA, the
Department of Housing and Urban Development, FHA, FHLMC and FNMA. Colonial Bank
underwrites, closes and sells mortgage loans according to the guidelines
required by these agencies. Prior to December 31, 1999, Colonial Bank's mortgage
business was operated primarily through three separate wholly owned
subsidiaries, Colonial Mortgage Company, InterWest Mortgage and CMC Funding,
Inc. (collectively "CMC"). On December 31, 1999, these subsidiaries were merged
into Colonial Bank. On October 8, 1999, CMC sold its wholesale production unit
to Union Planters Bank, N.A.
Colonial 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, mortgage banks, factors, insurance companies and
other financial institutions. At December 31, 1999, Colonial Bank accounted for
approximately 99.9% of BancGroup's consolidated assets.
The competitive environment for both Colonial Bank and BancGroup may be
materially affected by the recent enactment of the Gramm-Leach-Bliley Financial
Services Modernization Act. This law, which became effective on March 11, 2000,
eliminates many barriers between investment banking, commercial banking and
insurance underwriting and sales. See "-- Certain Regulatory Considerations."
Elimination of these barriers may create greater competition for BancGroup and
its subsidiaries, including Colonial Bank, by increasing the number and type of
competitors and by encouraging increased consolidation within the financial
services industry.
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NONBANKING SUBSIDIARIES
BancGroup has the following directly and wholly owned nonbanking
subsidiaries that are currently active. The Colonial BancGroup Building
Corporation, an Alabama corporation was established primarily to own and lease
certain buildings and land used by Colonial Bank. Colonial Capital II, a
Delaware business trust, issued $70 million in trust preferred securities in
1997, which are guaranteed by BancGroup.
Colonial Bank controls the following significant subsidiaries: CBG, Inc., a
Nevada corporation, owns certain trade names and trademarks which it licenses to
BancGroup and Colonial Bank for use in their businesses. CBG Investments, Inc.,
a Nevada corporation, owns and manages investment securities. Colonial
Investment Services, Inc., an Alabama Corporation; Colonial Investments Services
of Florida, Inc., a Florida corporation; Colonial Investment Services of
Tennessee, Inc., a Tennessee corporation and Colonial Investment Services of
Georgia, Inc., a Georgia corporation, offer various insurance products and
annuities for sale to the public; Colonial Asset Management, Inc., an Alabama
corporation, is an investment adviser registered under the Investment Advisers
Act of 1940.
At December 31, 1999, BancGroup and its subsidiaries employed approximately
3,389 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.
LENDING ACTIVITIES
BancGroup, through the branches and loan production 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, Georgia, Florida, Nevada
and Texas and are dependent upon economic conditions in those states. The
Alabama economy experiences a generally slow but steady rate of growth, while
Georgia, Florida, Texas and Nevada are experiencing higher rates of growth, with
the Las Vegas metropolitan area experiencing significant growth.
BancGroup's commercial banking loan portfolio is comprised primarily of
commercial real estate loans (30.8%), residential real estate loans (30.7%) and
real estate construction loans (commercial and residential) (17.4%). 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 demand 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.
The principal components of the loan portfolio are summarized below. These
broad categories 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,
warehouses, 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-to-value ratios for these loans do not exceed 80% to 85%. The principal
risks associated with these loans are related to the borrowers' ability to
complete the project, 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.
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- - Residential Real Estate. These loans consist of loans made to finance one-to
four-family residences and home equity loans on residences. BancGroup may loan
up to 90 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, financial
retail, or service businesses. The risks associated with loans in this
category are generally related to the earnings capacity of, and the cash flows
generated from, the individual business activities of the borrowers.
Collateral consists primarily of business equipment, inventory, and accounts
receivable 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, if the
borrower's or guarantor's credit worthiness, the borrower's other banking
relationships, the bank's lending experience with the borrower, or other
potential sources of repayment support granting an exception to the policy.
- - Consumer. 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
borrower, as well as the value of the collateral for secured loans. 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 and estimated by loan
officers through property inspections, reference to broad measures of market
values, and current experience with similar properties or collateral. Loans with
loan-to-value ratios in excess of 80% have potentially higher risks which are
offset by other factors including the borrower's or guarantors' credit
worthiness, the borrower's other banking relationships, the bank's lending
experience with the borrower, and any other potential sources of repayment.
Colonial Bank funds loans primarily with customer deposits, approximately
14% 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
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(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. 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.
On November 12, 1999, President Clinton signed into law the
Gramm-Leach-Bliley Financial Services Modernization Act ("Gramm-Leach").
Gramm-Leach became effective on March 11, 2000. The primary purpose of
Gramm-Leach is to eliminate barriers between investment banking and commercial
banking and to permit, within certain limitations, the affiliation of financial
service providers. Generally, Gramm-Leach (1) repeals the historical
restrictions against, and eliminates many federal and state law barriers to,
affiliations among banks, securities firms, insurance companies and other
financial service providers, (2) provides a uniform framework for the activities
of banks, savings institutions and their holding companies, (3) broadens the
activities that may be conducted by national banks and banking subsidiaries of
bank holding companies, (4) provides an enhanced framework for protecting the
privacy of consumer information, (5) adopts a number of provisions related to
the capitalization, membership, corporate governance and other measures designed
to modernize the Federal Home Loan Bank System, (6) modifies the laws governing
the implementation of the Community Reinvestment Act, and (7) addresses a
variety of other legal and regulatory issues affecting both day-to-day
operations and long-term activities of financial institutions.
More specifically, under Gramm-Leach, bank holding companies, such as
BancGroup, that meet certain management, capital, and Community Reinvestment Act
standards, are permitted to become financial holding companies and, by doing so,
to affiliate with securities firms and insurance companies and to engage in
other activities that are financial in nature and complementary thereto. A bank
holding company may become a
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financial holding company if each of its subsidiary banks is well capitalized
under the FDIC Improvement Act prompt corrective action provisions, is well
managed and has at least a satisfactory rating under the Community Reinvestment
Act. The required filing is a declaration that the bank holding company wishes
to become a financial holding company and meets all applicable requirements.
No prior regulatory approval will be required for a financial holding
company to acquire a company, other than a bank or savings association, engaged
in activities permitted under Gramm-Leach. Activities cited by Gramm-Leach as
being financial in nature include:
- securities underwriting, dealing and market making;
- sponsoring mutual funds and investment companies;
- insurance underwriting and agency;
- merchant banking activities; and
- activities that the Federal Reserve has determined to be closely related
to banking.
Gramm-Leach may change the operating environment of BancGroup and its
subsidiaries in substantial and unpredictable ways. BancGroup cannot accurately
predict the ultimate effect that this legislation, or implementing regulations,
will have upon the financial condition or results of operations of BancGroup or
any of its subsidiaries.
Certain subsidiaries of Colonial Bank currently sell insurance products in
Alabama, Georgia, Florida and Tennessee. Sales of such insurance products are
planned for Texas and Nevada in 2000. The names of the subsidiaries are
state-specific derivatives of Colonial Investment Services, Inc., and are
collectively referred to herein as "CIS." CIS's insurance activities are
conducted in Colonial Bank branches, but, in accordance with applicable law, are
segregated from banking activities. Those states where CIS is currently
operational allow the sale of insurance products by bank subsidiaries, subject
to regulation by each state's Department of Insurance and/or each state's
Banking Department. The extent of regulation varies materially from state to
state. However, the enactment of Gramm-Leach will require all states to allow
the sale of insurance by financial institutions. The states are reviewing their
insurance regulations for preemption by Gramm-Leach.
Colonial Asset Management, Inc. is a registered investment adviser under
the Investment Advisers Act of 1940. It is regulated by the Securities Exchange
Commission.
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 can, among other things, 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, 1999, BancGroup's total risk-based capital ratio was 11.31%,
including 8.71% of Tier 1 capital.
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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, 1999, BancGroup's leverage
capital ratio was 6.58%. 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. As of December 31,
1999, the most recent notification from the Federal Deposit Insurance
Corporation categorized Colonial Bank as "well capitalized" under the regulatory
framework for prompt corrective action.
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 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.
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ADDITIONAL INFORMATION
Additional information, including statistical information concerning the
business of BancGroup, is set forth herein see "Selected Financial Data and
Selected Quarterly Financial Data 1999-1998" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
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 and Colonial Bank are located
in Montgomery, Alabama in the Colonial Financial Center and are leased from G.C.
Associates I, Joint Venture, a company partly owned by a principal shareholder
of BancGroup. These leased premises comprise 81,441 square feet of office space.
As of December 31, 1999, Colonial Bank owned 174 and leased 64 of their
full-service banking offices. See Notes to the Consolidated Financial Statements
included herein. Colonial Asset Management, Inc. leases offices in Ponte Vedra
Beach, Florida.
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
PART II
ITEM 5. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
BancGroup's Common Stock is traded on the New York Stock Exchange under the
symbol "CNB." This trading commenced on February 24, 1995. As of March 1, 2000,
BancGroup had outstanding 111,591,524 shares of Common Stock, with 9,722
shareholders of record.
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The following table indicated the high and low closing prices for and
dividends paid on Common Stock during 1998 and 1999.
SALE PRICE OF
COMMON
STOCK DIVIDENDS DECLARED
------------------------ ON COMMON STOCK*
HIGH LOW (PER SHARE)
----- --- ------------------
1998
1st Quarter............................................... $18 1/8 $ 15 3/4 $.085
2nd Quarter............................................... 18 13/16 14 3/4 .085
3rd Quarter............................................... 17 5/16 11 5/8 .085
4th Quarter............................................... 13 11/16 10 3/8 .085
1999
1st Quarter............................................... 12 9/16 11 3/8 .095
2nd Quarter............................................... 13 15/16 11 3/16 .095
3rd Quarter............................................... 15 10 3/8 .095
4th Quarter............................................... 12 15/16 10 3/16 .095
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* Restated to reflect the impact of a two-for-one stock split effected on the
form of a stock dividend paid on August 14, 1998.
BancGroup has historically paid dividends each quarter. The restrictions
imposed upon Colonial Bank in regard to its ability to pay dividends to
BancGroup, which in turn limit BancGroup's ability to pay dividends are
described herein. See "Payments of Dividends and Other Restrictions".
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ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the last five
years:
1999 1998 1997 1996 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) -------- -------- -------- -------- --------
STATEMENT OF INCOME
Interest Income....................... $775,934 $693,542 $583,637 $481,478 $403,701
Interest expense...................... 397,990 350,441 284,771 232,126 192,521
-------- -------- -------- -------- --------
Net interest income................... 377,944 343,101 298,866 249,352 211,180
Provision for possible loan losses.... 28,707 26,345 16,321 14,442 10,989
-------- -------- -------- -------- --------
Net interest income after provision for
loan losses......................... 349,237 316,756 282,545 234,910 200,191
Noninterest income.................... 142,239 125,258 100,945 77,511 65,341
Noninterest expense................... 299,685 329,260 234,819 200,818 179,503
SAIF special assessment(1)............ -- -- -- 4,754 --
Acquisition and Y2K expense(2)........ 1,867 26,152 6,895 11,918 1,738
-------- -------- -------- -------- --------
Income before income taxes............ 189,924 86,602 141,776 94,931 84,291
Applicable income taxes............... 70,327 31,406 51,414 33,082 29,671
-------- -------- -------- -------- --------
Net income............................ $119,597 $ 55,196 $ 90,362 $ 61,849 $ 54,620
======== ======== ======== ======== ========
Income excluding SAIF special
assessment, acquisition, restructuring
and Y2K expense(1)(2)............... $120,839 $ 72,715 $ 95,801 $ 74,474 $ 56,010
EARNINGS PER COMMON SHARE
Income excluding SAIF special
assessment, acquisition and
restructuring costs and Y2K
expense(1)(2)(3)
Basic............................... $ 1.08 $ 0.66 $ 0.91 $ 0.76 $ 0.62
Diluted............................. 1.07 0.65 0.89 0.74 0.58
Net income:
Basic............................... $ 1.07 $ 0.50 $ 0.86 $ 0.64 $ 0.60
Diluted............................. 1.06 0.49 0.84 0.62 0.57
Average shares outstanding:
Basic............................... 111,678 110,062 105,010 97,246 90,785
Diluted............................. 113,252 112,431 108,396 101,128 98,505
Cash dividends per common share:
Common.............................. $ 0.38 $ 0.34 $ 0.30 $ 0.27 $ 0.1688
Class A(4).......................... -- -- -- -- 0.0563
Class B(4).......................... -- -- -- -- 0.0313
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(1) Legislation approving a one-time assessment to recapitalize the Savings
Association Insurance Fund ("SAIF") resulted in $4,754,000 in expenses
before income taxes and $3,091,000 net of applicable income taxes in 1996.
(2) Acquisition expenses reflect costs associated with the business combinations
discussed in Note 2 to the Consolidated Financial Statements. Restructuring
charges are discussed in Note 18 to the Consolidated Financial Statements.
(3) Restated to reflect the impact of two-for-one stock splits effected in the
form of stock dividends paid February 11, 1997 and August 14, 1998.
(4) Prior to February 21, 1995, BancGroup had two classes of common stock
outstanding, Class A and Class B. Class B was not publicly traded. Class A
was traded as a NASDAQ security under the symbol "CLBGA" until February 24,
1995, when the Class A and Class B common stock were reclassified into the
Common Stock.
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11
1999 1998 1997 1996 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) ----------- ----------- ---------- ---------- ----------
STATEMENT OF CONDITION DATA
At year end:
Total assets........................ $10,854,099 $10,456,285 $8,061,566 $6,630,642 $5,724,025
Loans, net of unearned income....... 8,228,149 7,110,295 5,951,067 4,835,274 4,130,126
Mortgage loans held for sale........ 33,150 692,042 238,540 167,993 131,114
Deposits............................ 7,967,978 7,446,153 6,325,690 5,135,215 4,520,739
Long-term debt...................... 889,571 746,447 315,281 39,092 49,756
Shareholders' equity................ 695,179 639,807 590,017 483,717 421,433
Average balances:
Total assets........................ 10,590,197 9,195,895 7,432,493 6,132,367 5,068,998
Interest-earning assets............. 9,609,152 8,300,873 6,804,087 5,610,184 4,636,115
Loans, net of unearned income....... 7,617,585 6,451,427 5,497,737 4,488,023 3,553,499
Mortgage loans held for sale........ 341,692 407,672 158,966 135,135 109,995
Deposits............................ 7,581,939 6,750,880 5,902,179 4,797,516 4,054,063
Shareholders' equity................ 673,255 642,287 547,886 458,807 368,680
Book value per share.................. $ 6.20 $ 5.77 $ 5.55 $ 4.71 $ 4.47
Tangible book value per share......... $ 5.51 $ 5.00 $ 4.90 $ 4.41 $ 4.15
SELECTED RATIOS
Income excluding SAIF special
assessment, Acquisition and
restructuring costs and Y2K expense
to:(1)(2)
Average assets...................... 1.14% 0.79% 1.29% 1.21% 1.10%
Average shareholders' equity........ 17.94 11.32 17.49 16.23 15.19
Net income to:
Average assets...................... 1.13 0.60 1.22 1.01 1.08
Average shareholders' equity........ 17.76 8.59 16.49 13.48 14.82
Efficiency ratio excluding SAIF,
acquisition and restructuring costs
and
Y2K expenses(1)(2).................. 57.26 69.72 58.28 62.13 64.91
Efficiency ratio...................... 57.62 75.38 59.99 67.19 65.54
Dividend payout ratio................. 35.51 68.00 34.88 42.86 37.50
Average equity to average total
Assets.............................. 6.36 6.98 7.37 7.48 7.27
Total nonperforming assets to net loans,
other real estate and
repossessions(3).................... 0.55 0.60 0.74 0.80 0.90
Net charge-offs to average loans...... 0.21 0.26 0.23 0.16 0.17
Allowance for possible loan losses to
total loans (net of unearned
income)............................. 1.17 1.18 1.21 1.28 1.30
Allowance for possible loan losses to
nonperforming loans(3).............. 269% 245% 247% 234% 243%
- ---------------
(1) Legislation approving a one-time assessment to recapitalize the Savings
Association Insurance Fund ("SAIF") resulted in $4,754,000 in expenses
before income taxes and $3,091,000 net of applicable income taxes in 1996.
(2) Acquisition expenses reflect costs associated with the business combinations
discussed in Note 2 to the Consolidated Financial Statements. Restructuring
charges are discussed in Note 18 to the Consolidated Financial Statements.
(3) Nonperforming loans and nonperforming assets are shown as defined in
Management's Discussion and Analysis of Financial condition and Results of
Operations -- Nonperforming Assets.
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SELECTED QUARTERLY FINANCIAL DATA
1999-1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1999 1998
----------------------------------------- -----------------------------------------
DEC. 31 SEPT. 30 JUNE 30 MARCH 31 DEC. 31 SEPT. 30 JUNE 30 MARCH 31
-------- -------- -------- -------- -------- -------- -------- --------
Interest income....................... $200,477 $196,157 $192,688 $186,612 $182,717 $180,459 $170,209 $160,157
Interest expense...................... 103,807 100,346 98,177 95,660 94,434 92,176 85,203 78,628
-------- -------- -------- -------- -------- -------- -------- --------
Net interest income................... 96,670 95,811 94,511 90,952 88,283 88,283 85,006 81,529
Provision for loan losses............. 9,239 7,014 6,435 6,019 14,343 4,087 3,964 3,951
-------- -------- -------- -------- -------- -------- -------- --------
Net interest income after provision
for loan loss....................... 87,431 88,797 88,076 84,933 73,940 84,196 81,042 77,578
Net Income (loss)..................... $ 30,750 $ 30,436 $ 30,263 $ 28,148 $ (3,896) $ 11,445 $ 26,849 $ 20,798
======== ======== ======== ======== ======== ======== ======== ========
Income excluding acquisition and
restructuring costs and
Y2K expense(1)...................... $ 31,015 $ 30,866 $ 30,404 $ 28,554 $ 3,534 $ 14,413 $ 28,358 $ 26,410
EARNINGS PER SHARE:
Net income (loss):
Basic(2)............................ $0.27 $0.27 $0.27 $0.25 $(0.04) $0.10 $0.24 $0.20
Diluted(2).......................... $0.27 $0.27 $0.27 $0.25 $(0.04) $0.10 $0.24 $0.19
- ---------------
(1) Acquisition expenses reflect costs associated with the business combinations
discussed in Note 2 to the Consolidated Financial Statements. Restructuring
charges are discussed in Note 18 to the Consolidated Financial Statements.
(2) Restated to reflect the impact of a two-for-one stock split effected in the
form of a stock dividend paid August 14, 1998.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
Management's Discussion and Analysis of Financial Condition and Results of
Operations is presented on the following pages. The principal purpose of this
review is to provide the reader of the attached financial statements and
accompanying footnotes with a detailed analysis of the financial results of The
Colonial BancGroup, Inc. and subsidiaries (for the purposes of this Item 7,
"BancGroup" or the "Company"). 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.
STRATEGY
BancGroup was reorganized in 1981 as a holding company with one bank and
$166 million in assets. Through 57 business combinations and strong internal
growth, BancGroup has grown to a $10.9 billion multi-state bank holding company
whose bank subsidiary operates full service branches through 14 operating
regions in six states. These operating regions are sometimes referred to in this
discussion as "regional banks".
The foundation of BancGroup is built upon a community banking philosophy
that allows local autonomy in lending decisions and customer relationships. This
operating philosophy has been important in making acquisitions, retaining
skilled and highly motivated local management teams and developing a strong
customer base, particularly with respect to lending relationships.
BancGroup's performance goals are: (1) to maintain double digit earnings
growth with above average asset quality, (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.
EMPHASIS ON GROWTH
From 1996 through 1998, BancGroup completed 24 acquisitions establishing
operations in some of the highest growth markets in the country such as Atlanta,
Orlando, Miami, Southwest Florida, Dallas and Las
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13
Vegas. Through the success of the Company's strategies of acquisitions and
growth in these markets, the geographic composition of BancGroup's loans and
deposits has significantly changed. This shift in concentration positions the
Company in the markets necessary to continue its successful earnings growth
trends.
The following table illustrates the change in BancGroup's regional bank
concentration of loans and deposits (years prior to 1998 are as originally
reported, prior to restatements for poolings-of-interest).
% TO TOTAL
AT DECEMBER 31,
------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
LOANS:
Alabama................................................... 49% 51% 63% 81% 90%
Florida................................................... 34 33 27 5 --
Georgia................................................... 10 10 9 12 8
Other..................................................... 7 6 1 2 2
--- --- --- --- ---
100% 100% 100% 100% 100%
=== === === === ===
DEPOSITS:
Alabama................................................... 46% 47% 59% 80% 91%
Florida................................................... 37 35 30 8 --
Georgia................................................... 9 9 9 9 6
Other..................................................... 8 9 2 3 3
--- --- --- --- ---
100% 100% 100% 100% 100%
=== === === === ===
Loan and deposit growth is emphasized in each market area through the
Company's regional banks. BancGroup has been successful in competing for loans
against larger financial institutions, due primarily to the Company's local
lending strategy which includes direct involvement by local management and
directors. Internal loan growth of 17% in 1999 and a net charge-off ratio of
0.21% evidence the success of the local market lending strategy.
The regional banks have additional growth opportunities through the
development of customer relationships by cross selling a variety of bank
products and services. Strong regional bank management supported by BancGroup's
asset/liability and products and services management teams provide the Company
with the resources to remain competitive in its deposit markets. Through these
groups' efforts, the Company has established a strategy to grow and retain its
deposit base while remaining competitive in deposit pricing and meeting the
Company's funding and liquidity goals.
Deposit growth is one of the Company's primary objectives for 2000.
Management has established several initiatives to accomplish this goal. In the
fourth quarter of 1999, the Company completed several campaigns to expand its
deposit base in the lower cost Florida markets. These campaigns resulted in 5%
average deposit growth for the quarter in addition to the 9.5% achieved in the
first nine months of the year in Florida. In January 2000, the Company
established a branch incentive program in which one of the key goals is for
employees to achieve an established deposit growth rate in their branches.
Management has contracted with a database marketing consultant to target
specific products and markets for future deposit campaigns in order to more cost
effectively increase its deposit base. Each of these initiatives is designed to
provide a solid foundation for achieving the Company's deposit growth
objectives.
EMPHASIS ON SALES AND SERVICE
The Company is comprised of approximately 238 full service branches in 14
regions and six states. Due to this significant presence in key areas,
management has established initiatives to utilize this retail base to grow
deposits as previously discussed and to expand its noninterest income producing
revenue sources.
The branch incentive program mentioned earlier is considered an integral
part of transforming our branch teams into an effective sales force. Personnel
will receive compensation for achieving established quarterly
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14
goals. These goals include retail deposit growth, noninterest income growth,
operating efficiency targets and customer service targets.
Customer needs are constantly changing, and BancGroup continues to
investigate methods of improving customer service through new services, product
enhancements and technological advances. Over the past two years, the Company
has created or expanded various services that should expand its sources of
noninterest income and provide better customer service. These services include
international banking, private banking, investment sales and asset management.
As part of the Company's continuing efforts to cross-sell these services through
its retail network, an increased training effort was initiated with branch
personnel to further their understanding of these services and the alternatives
they provide to their customers. An incentive for referrals of customers to
these areas has been established for Company employees.
By linking each of these initiatives to employee compensation, management
expects deposit growth and noninterest income growth to continue to improve.
EMPHASIS ON OPERATIONAL EFFICIENCIES
In 1999, management began implementing its plans to de-emphasize bank
acquisitions and to focus on streamlining operations and completing system
conversions of acquired banks. These actions alleviated any further conversion
delays and the resulting delay in cost savings.
The Company completed seven conversions in 1999 and completed the
conversion of its Texas branches in the first quarter of 2000. The remaining
conversions in Nevada should be completed by the end of April 2000. These
conversions allow the branches to process customer and account data on the same
operating system, which enhances their product offering capability and provides
additional customer services while allowing for consolidation of back-office
operations.
The success of these efforts to streamline operations is most noticeable in
the reduction of noninterest expense to average assets (excluding mortgage
banking assets) to 2.34% in 1999 compared to 2.73% in 1998. On the same basis,
the efficiency ratio improved to 52.9% in 1999 compared to 59.5% in 1998.
Management began additional initiatives in mid 1999. Some of these
initiatives were the further consolidation of loan operations, the establishment
of a central company-wide help desk to provide branch operational support, the
establishment of a call center to provide more efficient customer service and a
lock box service for more efficient processing of loan payments. The Company has
invested in technology that will provide additional efficiencies to its
processing of construction loans, small business loans and customer wire
transactions. In the fourth quarter of 1999, the Company implemented the first
phase of a corporate-wide imaging system. By imaging its internal reports and
documents, the Company expects to reduce document storage, paper and courier
costs and provide information more efficiently to users. Management continually
monitors its back-office areas for new and improved methods of more efficiently
handling its operational functions, providing better support to its regional
banks and improving customer service.
EMPHASIS ON PROFITABILITY
In 1999, the Company completed its restructuring plans to sell five
supermarket branches, to close several unprofitable branches and relocate and
upgrade several branches. In the third quarter of 1999, the Company completed
the sale of its Dalton, Georgia branches and made several strategic decisions
regarding Colonial Bank's subsidiary, Colonial Mortgage Company. The Company
completed the sale of Colonial Mortgage's wholesale mortgage production unit on
October 8, 1999. The 13 retail mortgage production offices were merged into the
regional bank management structure to increase the Company's focus on providing
a broad range of mortgage products and services to retail bank customers. On
December 31, 1999, Colonial Mortgage was merged into Colonial Bank. This merger
is expected to allow for the streamlining of the operational functions while
preserving each regional bank's ability to offer mortgage banking products to
its customers. As of December 31, 1999 Colonial Bank was servicing approximately
$15.2 billion in mortgage loans for third parties. The Company plans to reduce
the emphasis on the mortgage servicing line of business and sell portions of
this portfolio.
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15
The Company has initiated a strategy to provide a more accurate method of
assessing customer profitability. This new source of customer relationship
information will allow more targeted promotions to address specific customers'
needs. With enhanced customer information in the hands of retail branch
personnel and other areas that offer customer products, the Company hopes to
give more efficient and effective customer service. By providing more targeted
customer services, management expect service delivery to be more cost effective
resulting in improved customer profitability.
EMPHASIS ON 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 0.55% at December 31, 1999, its lowest year end level in six years,
primarily through the sales of other real estate and a lower percentage of
nonperforming loans to total loans. Net charge-offs over the past six years have
consistently compared favorably with national averages and were only 0.21% of
average loans in 1999 and 0.26% in 1998.
The Company cannot guarantee its success in implementing the initiatives or
reaching the goals outlined in this discussion. The following analysis of
financial condition and results of operations provides details with respect to
this summary material and identifies trends concerning the initiatives taken in
1999.
BUSINESS COMBINATIONS
A principal part of BancGroup's growth strategy has been 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 has completed the following business combinations with other financial
institutions. These business combinations have been reflected in the financial
statements at December 31, 1999. The balances reflected below are as of the date
of consummation.
ACCOUNTING DATE BANCGROUP TOTAL TOTAL TOTAL
FINANCIAL INSTITUTIONS TREATMENT CONSUMMATED SHARES ASSETS LOANS DEPOSITS
- ---------------------- ---------- ----------- --------- -------- -------- --------
(DOLLARS IN THOUSANDS)
1997
Jefferson Bancorp, Inc. (FL)........... Pooling 01/03/97 7,709,904 $472,732 $322,857 $405,836
Tomoka Bancorp, Inc. (FL).............. Pooling 01/03/97 1,323,984 76,700 51,600 68,200
First Family Financial Corp. (FL)...... Purchase 01/09/97 661,128 167,300 117,500 156,700
D/W Bankshares, Inc. (GA).............. Pooling 01/31/97 2,033,096 138,686 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 3,199,946 208,800 141,500 185,800
Great Southern Bancorp (FL)............ Pooling 07/01/97 1,855,622 121,009 98,100 106,673
First Commerce Banks of Florida,
Inc.(FL)............................. Purchase 07/01/97 1,371,390 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 1,007,864 65,048 50,699 58,283
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ACCOUNTING DATE BANCGROUP TOTAL TOTAL TOTAL
FINANCIAL INSTITUTIONS TREATMENT CONSUMMATED SHARES ASSETS LOANS DEPOSITS
- ---------------------- ---------- ----------- --------- -------- -------- --------
(DOLLARS IN THOUSANDS)
1998
United American Holding Corp. (FL)..... Pooling 02/02/98 4,226,412 $275,263 $197,623 $236,773
ASB Bancshares, Inc. (AL).............. Purchase 02/05/98 934,514 158,656 110,093 135,940
First Central Bank (FL)................ Pooling 02/11/98 1,377,368 62,897 40,451 52,048
South Florida Banking Corp. (FL)....... Pooling 02/12/98 3,864,458 255,769 172,992 226,999
Commercial Bank of Nevada (NV)......... Pooling 06/15/98 1,684,314 129,577 86,251 117,749
CNB Holding Corporation (FL)........... Pooling 08/12/98 1,767,562 89,893 58,456 81,445
FirstBank (TX)......................... Pooling 08/31/98 2,782,038 187,445 59,664 163,254
First Macon Bank & Trust (GA).......... Pooling 10/01/98 4,643,025 199,525 135,651 174,774
Prime Bank of Central Florida (FL)..... Pooling 10/06/98 1,173,019 74,502 42,547 66,955
InterWest Bancorp (NV)................. Pooling 10/15/98 1,748,338 131,590 83,689 114,516
TB&T, Inc. (TX)........................ Purchase 12/01/98 1,248,499 110,986 42,689 101,335
The 1997 combinations with Jefferson, D/W Bankshares and Fort Brooke and
the 1998 combinations with United American, First Central, South Florida,
Commercial Bank of Nevada, FirstBank, First Macon, Prime Bank and InterWest 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 and the 1998 combination with CNB Holding 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 shares issued for both the 1997 combination with First Commerce
Banks of Florida, Inc. and the 1998 combination with TB&T, Inc. included shares
previously re-purchased by the company as treasury shares. 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 on the earnings of BancGroup for 1997 and 1998 cannot
reasonably be determined.
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17
REVIEW OF RESULTS OF OPERATIONS
OVERVIEW
BancGroup is involved in two primary lines of business: commercial banking
and mortgage banking, through its wholly owned subsidiary Colonial Bank. The
following summary of BancGroup's results of operations discusses the related
impact of each line of business on the earnings of the Company.
LINE OF BUSINESS RESULTS
COMMERCIAL MORTGAGE CORPORATE/ CONSOLIDATED
BANKING BANKING(1) OTHER* BANCGROUP
---------- ---------- ---------- ------------
(DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER 31, 1999
Net interest income................................ $377,935 $ 7,274 $ (7,265) $377,944
Provision for possible loan losses................. 28,707 -- -- 28,707
Noninterest income................................. 74,870 68,066 (697) 142,239
Amortization and depreciation...................... 27,676 35,604 (408) 62,872
Noninterest expense................................ 206,203 32,409 68 238,680
-------- -------- -------- --------
Pretax income...................................... 190,219 7,327 (7,622) 189,924
Income taxes....................................... 71,272 2,735 (3,680) 70,327
-------- -------- -------- --------
Net Income (loss)........................ $118,947 $ 4,592 $ (3,942) $119,597
======== ======== ======== ========
YEAR ENDED DECEMBER 31, 1998
Net interest income................................ $336,970 $ 12,900 $ (6,769) $343,101
Provision for possible loan losses................. 26,345 -- -- 26,345
Noninterest income................................. 60,055 66,306 (1,103) 125,258
Amortization and depreciation...................... 25,227 64,025 (283) 88,969
Noninterest expense................................ 231,979 32,013 2,451 266,443
-------- -------- -------- --------
Pretax income...................................... 113,474 (16,832) (10,040) 86,602
Income taxes....................................... 40,760 (6,384) (2,970) 31,406
-------- -------- -------- --------
Net Income (loss)........................ $ 72,714 $(10,448) $ (7,070) $ 55,196
======== ======== ======== ========
YEAR ENDED DECEMBER 31, 1997
Net interest income................................ $297,691 $ 7,199 $ (6,024) $298,866
Provision for possible loan losses................. 16,321 -- -- 16,321
Noninterest income................................. 50,200 51,319 (574) 100,945
Amortization and depreciation...................... 18,768 17,972 9 36,749
Noninterest expense................................ 178,497 22,710 3,758 204,965
-------- -------- -------- --------
Pretax income...................................... 134,305 17,836 (10,365) 141,776
Income taxes....................................... 47,605 6,698 (2,889) 51,414
-------- -------- -------- --------
Net Income (loss)........................ $ 86,700 $ 11,138 $ (7,476) $ 90,362
======== ======== ======== ========
- ---------------
* Includes eliminations of certain intercompany transactions.
(1) In October 1999, the wholesale mortgage production unit of the mortgage
banking division was sold.
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18
The most significant factors affecting income for 1999, 1998 and 1997 are
highlighted below and discussed in greater detail in subsequent sections.
- - An increase of 15.8% in average earning assets in 1999. This follows an
increase of 22.0% in 1998.
- - An increase of $17.0 million (14%) and $24.3 million (24%) in noninterest
income in 1999 and 1998, respectively.
- - Internal loan growth of 16.8% in 1999 following an increase of 15.1% in 1998.
- - Maintenance of high asset quality and reserve coverage ratios. Net charge-offs
were $16.3 million or 0.21% of average net loans in 1999 and $16.7 million or
0.26% of average net loans in 1998.
- - Completion of the sale of the Dalton, Georgia branches and five supermarket
branches resulting in an after-tax gain of $3.8 million in the third quarter
of 1999 and $619,000 in the first quarter 1999, respectively.
- - Sale of the wholesale production unit of the mortgage banking division
resulting in an after-tax gain of $5.0 million in the fourth quarter of 1999.
- - Noninterest expense, excluding acquisition and restructuring costs and Y2K
expenses, is 2.83% of average assets compared to 3.58% in 1998. Noninterest
expense for 1998 included $37.0 million in impairment of mortgage servicing
rights.
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 the yields on a tax equivalent
basis are reflected on the following schedule. The net yield on interest-earning
assets was 3.97% in 1999 compared to 4.17% in 1998 and 4.44% in 1997. Over this
period net interest income on a tax-equivalent basis increased to $381 million
for 1999 from $346 million for 1998 and $302 million for 1997. The principal
factors affecting the Company's yields and net interest income are discussed on
the following pages.
LEVELS OF INTEREST RATES
Net interest margin was 3.97% for 1999 compared to 4.17% for 1998. The
primary factor affecting this decline in net interest margin was that, in spite
of rising rates in the last half of 1999, the average prime rate for 1999 was
8.00% compared to the average for 1998 of 8.36%. Likewise, the average targeted
fed funds rate for overnight borrowing decreased from 5.36% for 1998 to 5.00% in
1999. As a result of these lower average rates, the Company's yield on earning
assets decreased to 8.11% from 8.39% in 1998 and 8.62% in 1997. Interest-bearing
liabilities do not re-price as quickly as earning assets due to the competition
for certain types of deposits. The yield on interest-bearing liabilities
declined to 4.72% for 1999, from 4.94% for both 1998 and 1997 primarily due to
lower average market rates than prior years.
INTEREST-EARNING ASSETS
- - Growth in Earning Assets
One of the most significant factors in the Company's increase in income has
been the 15.8% and 22.0% increase in average interest-earning assets in 1999
and 1998, respectively. In addition and equally significant, average net loans
(including mortgage loans held for sale) increased $1.1 billion (16.0%) from
December 31, 1998 to December 31, 1999. Earning assets as a percentage of
total average assets were 90.7% and 90.3% in 1999 and 1998, respectively.
- - Mortgage Loans Held for Sale
Mortgage loans held for sale represent single family residential mortgage
loans originated or acquired then packaged and sold. 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. In October 1999, the
Company sold
17
19
the wholesale production unit of the mortgage banking division. As a result of
decreased activity due to the sale and increasing mortgage rates, average
mortgage loans held for sale decreased to $342 million in 1999 from $408
million in 1998. At December 31, 1999, mortgage loans held for sale had
declined to $33 million. Also as a result of the sale of the wholesale
production unit, the Company has entered into a third party correspondent
relationship for the sale of its retail production of fixed rate mortgage
loans, which substantially eliminates the need to hedge interest rate risk
associated with new production. Mortgage loans held for sale are funded
primarily with short-term borrowings.
- - Loan Mix
At December 31, 1999, the Company's mix of loans reflected an increase in
construction loans and commercial real estate loans to 17.4% and 30.8% of the
total portfolio from 14.5% and 28.2%, respectively, at December 31, 1998.
Residential real estate loans decreased to 30.7% of the total portfolio at
December 31, 1999, from 34.3% at December 31, 1998. The increase in the
construction loans is primarily the result of loan growth in the Georgia,
Florida, and Nevada regions. Commercial real estate loan growth also occurred
in these regions, as well as the Birmingham and East Central regions in
Alabama. The residential real estate loans are predominantly adjustable rate
first mortgages that have a low level of credit risk and accordingly have
lower yields than other types of loans.
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20
AVERAGE VOLUME AND RATES
1999 1998 1997
-------------------------------- ------------------------------- -------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
(IN THOUSANDS) VOLUME INTEREST RATE VOLUME INTEREST RATE VOLUME INTEREST RATE
- ------------------------------------------------------------ ------------------------------- -------------------------------
ASSETS:
Interest-earning assets:
Loans, net of unearned
income(1)............... $ 7,617,585 $650,017 8.53% $6,451,427 $575,851 8.93% $5,497,737 $500,801 9.11%
Mortgage loans held for
sale.................... 341,692 25,229 7.38% 407,672 29,585 7.26% 158,966 12,437 7.82%
Investment securities and
securities available for
sale:
Taxable............... 1,422,065 88,873 6.25% 1,152,624 73,829 6.41% 895,083 57,107 6.38%
Nontaxable(2)......... 92,335 6,729 7.29% 93,721 6,981 7.45% 88,490 6,689 7.56%
Equity securities..... 83,709 5,670 6.77% 88,920 4,775 5.37% 43,044 3,154 7.33%
----------- -------- ---------- -------- ---------- --------
Total
securities...... 1,598,109 101,272 6.34% 1,335,265 85,585 6.41% 1,026,617 66,950 6.52%
Federal funds sold and
securities purchased
under resale agreements
and other short-term
investments............. 51,766 2,585 4.99% 106,509 5,641 5.30% 120,767 6,575 5.44%
----------- -------- ---------- -------- ---------- --------
Total interest-earning
assets.................. 9,609,152 779,103 8.11% 8,300,873 696,662 8.39% 6,804,087 586,763 8.62%
----------- -------- ---------- -------- ---------- --------
Allowance for loan
losses.................. (88,685) (76,683) (69,314)
Cash and due from banks... 311,275 331,680 238,776
Premises and equipment,
net..................... 188,494 175,492 144,281
Other assets.............. 569,961 464,533 314,663
----------- ---------- ----------
TOTAL ASSETS.............. $10,590,197 $9,195,895 $7,432,493
=========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Interest-bearing
liabilities:
Interest-bearing demand
deposits................ $ 1,578,498 $ 43,081 2.73% $1,493,490 $ 44,330 2.97% $1,208,266 $ 33,708 2.79%
Savings deposits.......... 570,197 17,373 3.05% 531,032 16,872 3.18% 485,376 16,134 3.32%
Time deposits............. 4,043,004 213,154 5.27% 3,428,448 195,244 5.69% 3,185,125 183,056 5.75%
Short-term borrowings..... 1,306,060 66,756 5.11% 1,004,372 54,866 5.46% 727,790 40,825 5.61%
Long-term debt............ 937,243 57,626 6.15% 641,367 39,129 6.10% 158,529 11,048 6.97%
----------- -------- ---------- -------- ---------- --------
Total interest-bearing
liabilities............. 8,435,002 397,990 4.72% 7,098,709 350,441 4.94% 5,765,086 284,771 4.94%
----------- -------- ---------- -------- ---------- --------
Noninterest-bearing demand
deposits................ 1,390,240 1,297,910 1,023,412
Other liabilities......... 91,700 156,989 96,109
----------- ---------- ----------
Total liabilities......... 9,916,942 8,553,608 6,884,607
Shareholders' equity...... 673,255 642,287 547,886
----------- ---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY.... $10,590,197 $9,195,895 $7,432,493
=========== ========== ==========
RATE DIFFERENTIAL......... 3.39% 3.45% 3.68%
NET INTEREST INCOME AND
NET YIELD ON
INTEREST-EARNING
ASSETS(3)............... $381,113 3.97% $346,221 4.17% $301,992 4.44%
======== ======== ========
- ---------------
(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) Net interest income divided by average total interest-earning assets.
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21
AN ANALYSIS OF INTEREST INCREASES (DECREASES)
1999 CHANGE FROM 1998 1998 CHANGE FROM 1997
--------------------------------------- ----------------------------------------
ATTRIBUTED TO(1) ATTRIBUTED TO(1)
(IN THOUSANDS) AMOUNT VOLUME RATE MIX AMOUNT VOLUME RATE MIX
- -----------------------------------------------------------------------------------------------------------------------------
Interest income:
Taxable securities....................... $15,044 $ 17,258 $ (1,795) $ (419) $ 16,722 $ 16,431 $ 226 $ 65
Nontaxable securities(2)................. (252) (103) (151) 2 292 395 (98) (5)
Equity securities........................ 895 (280) 1,248 (73) 1,621 3,362 (843) (898)
------- -------- -------- ------- -------- -------- -------- -------
Total securities......................... 15,687 16,875 (698) (490) 18,635 20,188 (715) (838)
Total loans (net of unearned Income)..... 74,166 104,091 (25,344) (4,581) 75,050 86,874 (10,076) (1,748)
Mortgage loans held for sale............. (4,356) (4,788) 516 (84) 17,148 19,458 (901) (1,409)
Federal funds sold and Securities
purchased
Under resale agreements and
Other short-term investments........... (3,056) (2,899) (322) 165 (934) (771) (189) 26
------- -------- -------- ------- -------- -------- -------- -------
Total............................ 82,441 113,279 (25,848) (4,990) 109,899 125,749 (11,881) (3,969)
------- -------- -------- ------- -------- -------- -------- -------
Interest expense:
Interest-bearing demand
Deposits................................. (1,249) 2,523 (3,569) (203) 10,622 7,957 2,156 509
Savings deposits......................... 501 1,244 (692) (51) 738 1,518 (713) (67)
Time deposits............................ 17,910 34,998 (14,490) (2,598) 12,188 13,984 (1,669) (127)
Short-term borrowings.................... 11,890 16,480 (3,530) (1,060) 14,041 15,515 (1,068) (406)
Long-term debt........................... 18,497 18,051 305 141 28,081 33,649 (1,376) (4,192)
------- -------- -------- ------- -------- -------- -------- -------
Total............................ 47,549 73,296 (21,976) (3,771) 65,670 72,623 (2,670) (4,283)
------- -------- -------- ------- -------- -------- -------- -------
Net interest income.............. $34,892 $ 39,983 $ (3,872) $(1,219) $ 44,229 $ 53,126 $ (9,211) $ 314
======= ======== ======== ======= ======== ======== ======== =======
- ---------------
(1) Increases (decreases) are attributed to volume changes and rate changes on
the following basis: Volume Change = change in volume times old rate. Rate
Change = change in rate times old volume. The 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 is: actual interest earned times 145%. Tax equivalent
average rate is: tax equivalent interest earned divided by average volume.
INTEREST-BEARING LIABILITIES
- - Cost of Funds
The average cost of funds decreased to 4.72% in 1999, compared to 4.94% in
1998 and 1997. The lower average cost of funds is primarily the result of the
previously discussed decline in interest rates that began September 1998 and
continued into the second quarter 1999. Competitive pressures on new time
deposits and variable interest deposits remained strong. Due to these
pressures, the Company's funding mix has shifted to a higher concentration of
borrowings, primarily through credit facilities with the Federal Home Loan
Bank. The percentage of average total borrowings to total funding sources is
23% for 1999 compared to 20% for 1998 and 13% for 1997. These borrowings are
an excellent funding source since they are at rates lower than or comparable
to what the market demands for new time deposit funds. In addition to these
sources, the Company has initiated strategies to increase deposits through its
retail branch network. As discussed under Liquidity and Interest Sensitivity,
BancGroup's management considers these sources of funds to be adequate to fund
future loan growth.
20
22
NONINTEREST INCOME
One of BancGroup's primary strategies has been to expand its sources of
noninterest income. The Company continues to emphasize growth in international
banking, asset management services and electronic banking services. These
services provide a broader base of revenue generation capabilities. Noninterest
income increased $16.9 million or 14% from 1998 to 1999 and $24.3 million or 24%
from 1997 to 1998.
INCREASE (DECREASE)
-------------------------------
YEARS ENDED DECEMBER 31, 1999 1998
------------------------------ COMPARED COMPARED
1999 1998 1997 TO 1998 % TO 1997 %
-------- -------- -------- -------- --- -------- ---
(IN THOUSANDS)
Noninterest income:
Mortgage servicing fees............ $ 50,796 $ 44,308 $ 38,352 $ 6,488 15% $ 5,956 16%
Service charges on deposit
accounts........................ 38,490 37,360 31,402 1,130 3 5,958 19
Other charges, fees, and
commissions..................... 9,764 9,128 8,854 636 7 274 3
Other income....................... 41,919 33,595 20,812 8,324 25 12,783 61
-------- -------- -------- ------- -------
Subtotal............................. 140,969 124,391 99,420 16,578 13 24,971 25
Other noninterest income items:
Securities gains, net.............. 497 1,449 669 (952) 780
Gain (loss) on disposal of other
real estate and repossessions... 773 (582) 856 1,355 (1,438)
-------- -------- -------- ------- -------
Total noninterest income... $142,239 $125,258 $100,945 $16,981 14% $24,313 24%
======== ======== ======== ======= =======
Noninterest income from deposit accounts is significantly affected by
competitive pricing on these services and the volume of noninterest-bearing
accounts. During 1999 and 1998 average noninterest-bearing demand accounts
(excluding mortgage banking custodial deposits) increased 6% and 19%,
respectively. This increase in volume, increases in service fee rates and 1998
acquisitions resulted in a 3% increase in service charge income in 1999 and a
19% increase in 1998. In 1999, the increases in service charges and fees were
partially offset by the sale and closure of certain branches.
Other charges, fees, and commissions increased $636,000 or 7% in 1999 and
$274,000 or 3% in 1998. The increase is primarily from credit card related fees
and official check commissions.
The Company has continued to expand various sources of other noninterest
income in 1999. The international banking department that became fully
operational in July 1998 generated $1,353,000 of income in 1999 compared to
$392,000 in 1998. The Company had $424 million and $304 million in assets under
management through its trust department and Colonial Asset Management, Inc. at
December 31, 1999 and 1998, respectively. Revenue generated from trust, asset
management and investment sales services was approximately $5,498,000,
$3,539,000 and $2,387,000 for 1999, 1998 and 1997, respectively.
As shown in the table above, securities gains in each of the three years
were $497,000, $1,449,000 and $669,000, respectively. While a substantial
portion of the securities portfolio is considered available for sale, BancGroup
currently intends to hold substantially its entire securities portfolio for
investment purposes. In 1999, $582,000 was the result of trading security income
from the sale of an equity security. 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.
Income from loan servicing increased 15% from 1998 to 1999 and 16% from
1997 to 1998. The mortgage loan servicing division serviced an average of
192,000, 173,000 and 147,000 customers during 1999, 1998 and 1997, respectively,
located in 43 states and the District of Columbia. The outstanding balance of
the servicing portfolio to third parties was $15.2 billion, $14.7 billion and
$11.4 billion at December 31, 1999, 1998 and 1997, respectively.
In October 1999, the Company sold its wholesale mortgage production unit.
The 13 retail production offices were merged into the regional bank structure to
increase the Company's focus on providing a broad range of mortgage products and
services to retail bank customers. As a result of this sale and increasing
21
23
interest rates, previously discussed, gains on the sales of loans decreased
$12.3 million in 1999 to $8.1 million. Low mortgage interest rates in 1998
resulted in an increase in new home sales and refinancings. Due to this
increased activity, gains on the sales of loans increased $9.1 million in 1998
to $20.4 million from $11.3 million in 1997. These fluctuations are reflected in
other income in the accompanying table.
Other income of $15 million was recorded as a result of gains on the sales
of the wholesale mortgage production unit, five supermarket branches and the
Company's Dalton, Georgia branches.
NONINTEREST EXPENSE
Noninterest expense to average assets improved to 2.83% from 3.18% and
3.16% in 1998 and 1997, respectively. (These ratios are stated on a comparable
basis excluding acquisition and restructuring costs, Y2K expenses and the 1998
additional write-down of mortgage servicing rights.)
During the fourth quarter of 1998, management made the decision to shift
the Company's focus from bank acquisitions to streamlining operations and
completing systems conversions of acquired banks. The foundation for these
efficiencies is the current operating structure where the regional banks are
supported by centralized back office-operations.
The Company completed the conversion of its remaining Georgia and Florida
acquired banks in 1999. The Company completed the conversion of banks acquired
in Texas in the first quarter of 2000. Conversions of banks acquired in Nevada
are scheduled for completion in February and April 2000, respectively. The
Company completed the sale of five supermarket branches in the first quarter of
1999, closed several unprofitable branches in the second quarter of 1999,
completed the sale of its Dalton, Georgia branches in the third quarter of 1999
and sold the wholesale mortgage production unit in the fourth quarter of 1999.
As a result of the sale of the wholesale mortgage production unit, the 13 retail
offices were merged into the regional bank structure of Colonial Bank. In order
to further streamline the mortgage banking operations, its other units such as
servicing, accounting and secondary marketing were merged into the corresponding
commercial banking areas such as operations, accounting and treasury. Each of
these initiatives resulted in a reduction in operating expenses after its
completion, although the full impact will not be reflected until 2000.
INCREASE (DECREASE)
--------------------------------
YEARS ENDED DECEMBER 31, 1999 1998
------------------------------ COMPARED COMPARED
1999 1998 1997 TO 1998 % TO 1997 %
-------- -------- -------- -------- --- -------- ---
(IN THOUSANDS)
Noninterest expense:
Salaries and employee benefits..... $121,717 $121,445 $105,287 $ 272 --% $ 16,158 15%
Occupancy expense, net............. 30,271 28,291 23,821 1,980 7 4,470 19
Furniture and equipment expenses... 27,924 24,787 20,086 3,137 13 4,701 23
Amortization and impairment of
mortgage servicing rights........ 34,478 62,909 17,123 (28,431) (45) 45,786 267
Amortization of intangible
assets........................... 5,241 4,927 3,206 314 6 1,721 54
Acquisition and restructuring
expense.......................... 1,307 21,535 6,463 (20,228) (94) 15,072 233
Y2K expense........................ 560 4,617 432 (4,057) (88) 4,185 969
FDIC and state assessments......... 1,629 2,221 1,822 (592) (27) 399 22
Advertising and public relations... 7,014 7,835 7,574 (821) (10) 261 3
Stationery, printing and
supplies......................... 6,245 6,551 5,525 (306) (5) 1,026 19
Telephone.......................... 7,793 7,276 5,510 517 7 1,766 32
Legal fees......................... 5,001 4,663 2,949 338 7 1,714 58
Postage and courier................ 7,743 7,185 6,001 558 8 1,184 20
Insurance.......................... 1,699 1,644 2,095 55 3 (451) (22)
Professional services.............. 12,423 13,739 9,945 (1,316) (10) 3,794 38
Travel............................. 4,210 4,695 4,035 (485) (10) 660 16
Other.............................. 26,297 31,092 19,840 (4,795) (15) 11,252 57
-------- -------- -------- -------- --------
Total noninterest expense... $301,552 $355,412 $241,714 $(53,860) (15)% $113,698 47%
======== ======== ======== ======== ========
Noninterest expense, excluding
Acquisition, restructuring and Y2K
expenses to Average Assets......... 2.83% 3.58% 3.16%
22
24
Salaries and benefits increased by $272,000 in 1999 and $16.2 million or
15% in 1998. The increase in 1999 is due to normal salary rate increases offset
by a reduction in personnel resulting from the branch sales and closings
discussed above. The increase in 1998 is primarily due to salary rate increases
and increased staffing levels as a result of 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 remained relatively constant from 1997 to 1999.
Net occupancy and furniture and equipment expense increases are primarily
due to improvements to the Company's computer and communications technology.
These improvements in technology give the Company the ability to enhance
customer service and continue to improve back-office efficiencies. These
increases were offset by reductions in costs related to the previously detailed
sales of certain branches. There were also increased occupancy costs in 1998
related to improved technology, the relocation of certain facilities and
acquisition activities. These relocations should allow for expansion of the
Company's customer base and provide better customer service.
In 1998 the mortgage banking division recorded $37 million in additional
write-downs to its mortgage servicing rights (MSR). This write-down was caused
primarily by anticipated prepayments of mortgages in the servicing portfolio
being greater than previously expected. The remaining $26 million of MSR
amortization in 1998 and $34 million of MSR amortization in 1999 are normal
amortization resulting from the growth in the servicing portfolio and higher
estimates of mortgage prepayments. Results for 1999 also includes $5 million in
expense related to the MSR hedging instruments. The net balance of MSRs was $238
million and $183 million at December 31, 1999 and 1998, respectively.
Amortization of intangible assets primarily increased due to the
acquisitions in 1998 of ASB Bancshares, Inc. and TB&T, Inc. and in 1997 of
Shamrock Holdings, Inc., First Commerce Bank of Florida, Inc. and Dadeland
Bancshares, Inc., which were accounted for as purchases and therefore required
the recording of goodwill and core deposit intangibles. A waiver of the state
assessment in the first and second quarters of 1999 caused the decrease in the
FDIC and state assessments in 1999 of $592,000. Fluctuations in advertising,
supplies, postage and other expenses are primarily due to normal operating
activities and acquisition related activities offset by lower operating expenses
resulting from the sale and closure of certain branches.
ACQUISITION EXPENSE AND RESTRUCTURING CHARGES
In the first quarter of 1998, BancGroup reorganized executive management of
its Florida regions, which resulted in a restructuring charge of $2.5 million.
During the fourth quarter of 1998, the Company developed a plan to:
- - Close certain unprofitable branches
- - Sell five supermarket branches
- - Relocate and upgrade two other branches
- - Move the headquarters of the South Florida Region to downtown Miami and to
consolidate the trust department into the South Florida headquarters to better
serve its customer base.
As a result of these actions, BancGroup recognized 1998 restructuring
charges of $8.8 million, which were net of $902,000 in reversals of unused
reserves.
At each balance sheet date, Company management reviews payments and other
activity relating to the liability balances to ensure the amounts have been
properly applied to the accruals. Additionally, Company management reviews the
status of the restructuring plan to ensure that there has not been a significant
change which affects the accruals (i.e. delay in subleasing due to changes in
the market conditions or settlement of liability for an amount different from
the amount accrued). This evaluation includes obtaining updates, as needed, from
third party experts, such as leasing agents.
23
25
The following is a summary of restructuring charges and activity for the
years ended December 31, 1999 and 1998:
LEASE ACCRUED
REDUCTION OF TERMINATION SEVERANCE
ASSET VALUES LIABILITIES & OTHER TOTAL
------------ ----------- --------- -------
(IN THOUSANDS)
January 1, 1998.............................. $ -- $ -- $ -- $ --
Additions (expense).......................... 4,395 3,240 2,052 9,687
Reversal of unused reserves.................. -- (362) (540) (902)
------- ------- ------ -------
Net expense.................................. 4,395 2,878 1,512 8,785
Write-off of assets.......................... (4,395) -- -- (4,395)
Reductions (payments)........................ -- -- (914) (914)
------- ------- ------ -------
Balance at December 31, 1998................. -- 2,878 598 3,476
Reductions (payments)........................ -- (1,327) (598) (1,925)
------- ------- ------ -------
Balance at December 31, 1999................. $ -- $ 1,551 $ -- $ 1,551
======= ======= ====== =======
During 1999, BancGroup discontinued operations in 14 supermarket branches.
Five supermarket branches were sold in the first quarter of 1999 and nine were
closed in the second quarter of 1999. The Company bought out the service
contracts and lease commitments of the closed branches. All equipment was
redeployed to other branch locations. By closing these branches in May 1999, the
Company saved approximately $1.5 million in operating expenses in 1999.
The outstanding lease termination liabilities of $1.6 million at December
31, 1999 relate to the consolidation in the fourth quarter of 1999 of two
branches in South Florida to a new location and the lease obligation net of any
anticipated sublease income related to the relocation of the South Florida
Region headquarters and trust department. Management in South Florida continues
to pursue a resolution of the space vacated from the relocation of its
headquarters and trust department. Management is in negotiations with its Lessor
regarding the lease terms as well as pursuing the possibility of subleasing the
space. Management does not have a specific date of completion at this time.
The results for 1999, reflect the continued implementation of the Company's
plan to de-emphasize acquisitions, complete system conversions, streamline
operations and eliminate less profitable operations. As a result of this focus,
the Company recognized acquisition and conversion related expenses of $1.3
million and $12.5 million for the years ended December 31, 1999 and 1998,
respectively. These expenses related primarily to transaction costs such as
legal and accounting fees and incremental charges related to the integration of
acquired banks, such as system conversion (including contract buy-outs and
write-offs of equipment) and employee severance.
YEAR 2000 READINESS DISCLOSURE
Until recently, many computer software programs and processing systems,
including some of those used by BancGroup and its subsidiaries in their
operations, were not designed to accommodate entries beyond the year 1999 in
date fields. Failure to address the anticipated consequences of this design
deficiency could have had material adverse effects on the business and
operations of any business, including BancGroup, that relies on computers and
associated technologies.
BancGroup aggressively addressed the challenges that Year 2000 presented to
its operations. The transition into Year 2000 went according to plan with all
functions doing business as usual.
BancGroup incurred approximately $12,500,000 in expenditures on the Year
2000 project, $1,076,000 during 1999, $11,000,000 in 1998 and $432,000 in 1997.
Year 2000 project costs of approximately $560,000 were expensed during 1999
while $4,600,000 and $432,000 were expensed during the years ended December 31,
1998 and 1997, respectively.
24
26
INCOME TAXES
The provision for income taxes and related items are as follows:
TAX
PROVISION
-----------
1999........................................................ $70,327,000
1998........................................................ 31,406,000
1997........................................................ 51,414,000
BancGroup is subject to federal and state taxes at combined rates of
approximately 37% 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, nondeductible amortization of goodwill, and
certain nondeductible acquisition expenses.
REVIEW OF FINANCIAL CONDITION
OVERVIEW
Changes in ending asset balances of the company's segments and changes in
selected components of the Company's balance sheet from December 31, 1998 to
December 31, 1999 are as follows:
INCREASE (DECREASE)
AMOUNT %
---------- ----------
(IN THOUSANDS)
Assets:
Commercial Banking........................................ $ 992,646 10.4%
Mortgage Banking(1)....................................... (595,146) (63.5)
Corporate/Other(2)........................................ 314 2.6
----------
Total Assets................................................ $ 397,814 3.8%
==========
Other Balance Sheet Components:
Securities available for sale and investment securities... $ (33,499) (2.1)%
Mortgage loans held for sale.............................. (658,892) (95.2)
Loans, net of unearned income............................. 1,117,854 15.7
Mortgage servicing rights................................. 54,937 29.9
Deposits.................................................. 521,825 7.0
Long-term debt............................................ 143,124 19.2
- ---------------
(1) The wholesale mortgage production unit was sold in October 1999.
(2) Includes eliminations of certain intercompany transactions.
Management continually 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 1998 through 1999 have been:
- - Internal loan growth of 16.8% in 1999 following 15.1% growth in 1998 excluding
acquisitions.
- - Loan mix changed to reflect a decrease in residential mortgage loans to 30.7%
of the total loan portfolio from 34.3% in 1998.
- - A 7.1% increase in average noninterest bearing demand deposits for 1999,
primarily attributable to internal growth.
- - Maintenance of high asset quality and reserve coverage of nonperforming
assets. Nonperforming assets were 0.55% and 0.60% of related assets at
December 31, 1999 and 1998, respectively. Net charge-offs were 0.21% and 0.26%
of average loans during 1999 and 1998, respectively. The allowance for
possible loan losses was 1.17% of loans at December 31, 1999, providing a 269%
coverage of nonperforming loans (nonaccrual and renegotiated).
25
27
- - A loan to deposit ratio of 103.3% and 95.5% at December 31, 1999 and 1998,
respectively. Federal Home Loan Bank borrowings continue to be a major source
of funding allowing the Company greater funding flexibility.
- - Decrease of $659 million in mortgage loans held for sale during 1999 due
primarily to the sale of the wholesale mortgage production unit as well as a
decrease in refinancing activities and new home sales due to higher mortgage
interest rates.
- - Increase of $54.9 million in mortgage servicing rights due to the net increase
in the mortgage servicing portfolio to $15.2 billion in 1999 and $53.7 million
of capitalized hedge loss. The Company has hedged approximately 58% of its
mortgage servicing rights asset at December 31, 1999.
- - Issuance of $100 million 8% subordinated notes which qualifies as Tier II
Capital.
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 for improved earnings. Management's emphasis, within all
of BancGroup's banking regions, is on loan growth in accordance with local
market demands and using the lending experience and expertise in the regional
banks. Management believes that its strategy of meeting local demands and
utilizing local lending expertise has proved successful. This success is evident
in internal loan growth of 16.8% in 1999, 15.1% in 1998, 9.75% in 1997 and 16.4%
in 1996, excluding acquisitions. Internal loan growth has been a major factor in
BancGroup's increasing earnings.
Management believes that any existing concentrations of loans, whether
geographically, by industry, or by borrower, do not expose BancGroup to
unacceptable levels of risk. The current concentration of loans remains diverse
in location, size, and collateral function. These differences, in addition to
quality underwriting, serve to reduce the risk of losses.
BancGroup has a significant concentration of commercial real estate loans
representing 30.8% of total loans. BancGroup's commercial real estate loans are
spread geographically throughout Alabama and Florida and other areas including
metropolitan Atlanta, Georgia, Dallas, Texas and Reno and Las Vegas, Nevada with
no more than 17% of these loans in any one geographic region. The Alabama
economy experiences a generally slow but steady rate of growth, while Georgia,
Florida, Texas and Nevada are experiencing higher rates of growth with the Las
Vegas metropolitan area experiencing significant growth. Real estate in
BancGroup's lending areas has not experienced significantly inflated values due
to excessive speculation or inflationary pressures. The collateral held in the
commercial real estate portfolio consists of various property types with no one
property type constituting a concentration. Risk is further reduced by the
relatively small average loan size and the application of conservative
underwriting guidelines. BancGroup's commercial real estate related loans
continue to perform at acceptable levels.
BancGroup also continues to have a significant concentration of residential
real estate loans as they represent 30.7% of total loans. Substantially all of
these loans are adjustable rate first mortgages on single-family, owner-occupied
properties, and therefore, have minimal credit risk and lower interest rate
sensitivity. A portion of these loans was acquired through bank acquisitions.
BancGroup has a history of successfully lending in the residential real estate
market and its quality ratios remain favorable in this portfolio segment.
BancGroup's international banking department became fully operational in
July 1998. The department engages in confirming letters of credit, primarily
with top-tier banks in Latin America, and direct disbursements to those banks
from U.S. customers. Loans outstanding to Latin American banks at December 1999
totaled approximately $84 million. However, due to the immaterial balance of
these loans in relation to total loans, these amounts will not be reported
separately.
26
28
BancGroup established a mortgage warehouse lending department in the third
quarter of 1998. This department provides lines of credit collateralized by
residential mortgage loans to top tier mortgage companies predominantly in the
Southeast. Loans outstanding at December 31, 1999 and 1998 were $162 million and
$85 million, respectively, with unfunded commitments of $268 million and $74
million at December 31, 1999 and 1998, respectively. These loans are categorized
as other loans in the following schedule.
The mortgage banking production unit holds mortgage loans on a short-term
basis (generally less than ninety days) while these loans are being packaged for
sale. These loans are classified as mortgage loans held for sale with balances
totaling $33 million, $692 million and $239 million, at December 31, 1999, 1998
and 1997, respectively. There is minimal credit risk associated with these
loans. The fluctuations 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 and new home sales. The decrease in the 1999 balance is the
result of rising mortgage rates and the October 1999 sale of the wholesale
mortgage production unit. The Company continues to originate these loans through
its retail mortgage branches. 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 that provide the capability for the Company to exceed a 100%
loan to deposit ratio and maintain adequate liquidity.
GROSS LOANS BY CATEGORY
DECEMBER 31,
--------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
Commercial, financial and
agricultural....................... $1,126,191 $1,102,446 $ 751,375 $ 692,761 $ 609,683
Real estate -- commercial............ 2,538,304 2,006,851 1,673,505 1,217,175 1,031,146
Real estate -- construction.......... 1,435,004 1,028,471 734,239 545,681 449,542
Real estate -- residential........... 2,528,413 2,438,236 2,382,324 2,010,420 1,719,537
Installment and consumer............. 297,555 344,860 329,136 315,143 276,097
Other................................ 302,860 189,934 81,181 58,607 49,727
---------- ---------- ---------- ---------- ----------
Total loans................ $8,228,327 $7,110,798 $5,951,760 $4,839,787 $4,135,732
========== ========== ========== ========== ==========
27
29
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 allocation 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,
---------------------------------------------------------------------------------------------
1999 1998 1997 1996
--------------------- --------------------- --------------------- ---------------------
PERCENT OF PERCENT OF PERCENT OF PERCENT OF
LOANS TO LOANS TO LOANS TO LOANS TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
------- ----------- ------- ----------- ------- ----------- ------- -----------
(IN THOUSANDS)
Balance at end of period
applicable to:
Commercial, financial, and
agricultural............ $23,051 13.7% $19,068 15.5% $13,955 12.6% $12,932 14.3%
Real
estate -- commercial.... 34,729 30.8 30,382 28.2 25,979 28.1 19,792 25.1
Real
estate -- construction... 16,907 17.4 14,681 14.5 13,854 12.3 10,886 11.3
Real
estate -- residential... 12,642 30.7 12,191 34.3 11,912 40.1 11,303 41.5
Installment and
consumer................ 3,992 3.6 4,930 4.8 5,079 5.5 4,673 6.5
Other..................... 4,672 3.8 2,310 2.7 1,328 1.4 2,146 1.3
------- ----- ------- ----- ------- ----- ------- -----
Total................... $95,993 100.0% $83,562 100.0% $72,107 100.0% $61,732 100.0%
======= ===== ======= ===== ======= ===== ======= =====
DECEMBER 31,
--------------------
1995
--------------------
PERCENT OF
LOANS TO
TOTAL
AMOUNT LOANS
------- ----------
(IN THOUSANDS)
Balance at end of period
applicable to:
Commercial, financial, and
agricultural............ $11,153 14.7%
Real
estate -- commercial.... 17,353 24.9
Real
estate -- construction... 8,277 10.9
Real
estate -- residential... 10,034 41.6
Installment and
consumer................ 4,099 6.7
Other..................... 2,854 1.2
------- -----
Total................... $53,770 100.0%
======= =====
LOAN MATURITY/RATE SENSITIVITY
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, 1999, approximately 47.7% of loans were floating 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 of future events, particularly with respect to interest rates,
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.
LOAN MATURITY/RATE SENSITIVITY
DECEMBER 31, 1999
----------------------------------------------------------------------------------------
RATE SENSITIVITY,
LOANS MATURING
MATURING RATE SENSITIVITY OVER 1 YEAR
------------------------------------ ----------------------- -----------------------
WITHIN OVER 5
1 YEAR 1-5 YEARS YEARS FIXED FLOATING FIXED FLOATING
---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
Commercial, financial,
and agricultural....... $ 544,634 $ 437,683 $ 143,874 $ 539,226 $ 586,965 $ 356,436 $ 225,121
Real
estate -- commercial... 437,466 1,342,337 758,501 1,874,482 663,822 1,683,118 417,720
Real
estate -- construction.. 785,556 555,256 94,192 519,678 915,326 336,735 312,713
Real
estate -- residential... 184,202 362,621 1,981,590 1,014,273 1,514,140 915,530 1,428,681
Installment and
consumer............... 96,959 181,191 19,405 269,068 28,487 188,225 12,371
Other.................... 214,865 53,069 34,926 87,854 215,006 57,534 30,461
---------- ---------- ---------- ---------- ---------- ---------- ----------
$2,263,682 $2,932,157 $3,032,488 $4,304,581 $3,923,746 $3,537,578 $2,427,067
========== ========== ========== ========== ========== ========== ==========
28
30
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 the underwriting and ongoing review of loans and
through a company wide senior credit administration function. This function
reviews larger credits prior to approval and also provides an independent review
of credits on a continued 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 95% for residential real estate. Commercial non-real estate, 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% or lower 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, 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
historical loss experience and current economic conditions.
The overall goal and result of these policies and procedures is to provide
a sound basis for new credit extensions and an early recognition of problem
assets to allow increased flexibility in their timely disposition.
LOAN LOSS EXPERIENCE
During 1999, the ratio of net charge-offs to average loans decreased to
0.21% from 0.26% in 1998 and 0.23% in 1997. 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 residential real estate loans has had a favorable
impact on net charge-offs.
29
31
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 early identification of potential problem loans. Management is
committed to maintaining adequate reserve levels to absorb losses present in the
loan portfolio.
SUMMARY OF LOAN LOSS EXPERIENCE
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
Allowance for possible loan
losses -- January 1...................... $ 83,562 $ 72,107 $ 61,732 $ 53,770 $ 47,773
Charge-offs:
Commercial, financial and agricultural... 9,627 6,001 5,577 3,627 4,044
Real estate -- commercial................ 3,226 3,273 2,972 2,389 1,299
Real estate -- construction.............. 1,171 1,731 433 1,803 44
Real estate -- residential............... 2,579 3,380 1,765 911 499
Installment and consumer................. 5,044 6,803 5,695 3,482 2,984
Other.................................... 1,711 1,469 694 239 166
---------- ---------- ---------- ---------- ----------
Total charge-offs................. 23,358 22,657 17,136 12,451 9,036
---------- ---------- ---------- ---------- ----------
Recoveries:
Commercial, financial and agricultural... 2,516 1,206 1,001 1,452 1,252
Real estate -- commercial................ 601 1,399 1,024 1,533 48
Real estate -- construction.............. 54 43 91 1 11
Real estate -- residential............... 849 545 244 697 201
Installment and consumer................. 2,678 1,945 1,820 1,589 1,358
Other.................................... 384 789 137 82 46
---------- ---------- ---------- ---------- ----------
Total recoveries.................. 7,082 5,927 4,317 5,354 2,916
---------- ---------- ---------- ---------- ----------
Net charge-offs............................ 16,276 16,730 12,819 7,097 6,120
Addition to allowance charged to
operating expense........................ 28,707 26,345 16,321 14,442 10,989
Allowance added from bank acquisitions..... -- 1,840 6,873 617 1,128
---------- ---------- ---------- ---------- ----------
Allowance for possible loan losses --
December 31.............................. $ 95,993 $ 83,562 $ 72,107 $ 61,732 $ 53,770
========== ========== ========== ========== ==========
Loans (net of unearned income)
December 31.............................. $8,228,149 $7,110,295 $5,951,067 $4,835,274 $4,130,126
Ratio of ending allowance to ending loans
(net of unearned income)................. 1.17% 1.18% 1.21% 1.28% 1.30%
Average loans (net of unearned income)..... $7,617,585 $6,451,427 $5,497,737 $4,488,023 $3,553,499
Ratio of net charge-offs to average loans
(net of unearned income)................. 0.21% 0.26% 0.23% 0.16% 0.17%
Allowance for loan losses as a percent of
nonperforming loans
(nonaccrual and renegotiated)............ 269% 245% 247% 234% 243%
30
32
NONPERFORMING ASSETS
BancGroup classifies problem loans into four categories: nonaccrual, past
due, renegotiated and other potential problems. When management determines that
a loan no longer meets the criteria for a performing loan 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 that are contractually 90 days past due, renegotiated or nonaccrual. These
loans are summarized as follows:
NONPERFORMING ASSETS
DECEMBER 31,
-----------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
(IN THOUSANDS)
Aggregate loans for which interest
is not being accrued........................... $34,461 $32,823 $28,209 $24,729 $20,201
Aggregate loans renegotiated to
provide a reduction or deferral
of interest or principal because of
deterioration in the financial
condition of the borrower...................... 1,265 1,334 1,014 1,683 1,882
------- ------- ------- ------- -------
Total nonperforming loans*....................... 35,726 34,157 29,223 26,412 22,083
Other real estate and in-substance foreclosure... 9,009 8,164 14,044 11,834 14,884
Repossessions.................................... 206 564 796 338 171
------- ------- ------- ------- -------
Total nonperforming assets*...................... $44,941 $42,885 $44,063 $38,584 $37,138
------- ------- ------- ------- -------
Aggregate loans contractually past due 90
days for which interest is being accrued....... $11,184 $ 8,992 $ 7,335 $ 7,860 $ 3,532
Total nonperforming loans as a percent
of net loans................................... 0.43% 0.48% 0.49% 0.55% 0.53%
Total nonperforming assets as a percent of
net loans, other real estate and
repossessions.................................. 0.55% 0.60% 0.74% 0.80% 0.90%
Total nonperforming and 90 day past due
loans for which interest is being accrued as a
percent of total loans......................... 0.57% 0.61% 0.61% 0.71% 0.62%
Allowance for loan loss as a percent of
nonperforming loans (nonaccrual
and renegotiated).............................. 269% 245% 247% 234% 243%
- ---------------
* 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.
Management, through its loan officers, internal loan review staff and
external examinations by regulatory agencies, has identified approximately $149
million of potential problem loans not included above. The status of these loans
is reviewed at least quarterly by loan officers and BancGroup Credit
Administration and annually by BancGroup's centralized credit review function
and 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, 1999, substantially all of these loans
are current with their existing repayment terms. Management believes that
classification of such
31
33
loans as potential problem loans well in advance of their reaching a delinquent
status allows the Company the greatest flexibility in correcting problems and
providing adequate reserves. 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, 1999, 1998, 1997, 1996 and
1995.
The recorded investment in impaired loans at December 31, 1999 and 1998 was
$23.3 million and $18.6 million, respectively and these loans had a
corresponding valuation allowance of $13.8 million and $4.8 million,
respectively. The average investment in impaired loans during 1999 and 1998
totaled $21.2 million and $20.0 million, 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, 1999
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 that 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 maturities of investment alternatives are determined in consideration of
the yield curve, liquidity needs and the Company's asset/liability gap
position.
- - The risk elements associated with the various types of securities are also
considered in determining investment strategies. U.S. Treasury and
non-callable 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,
1999 does not include any interest-only strip securities and the amount of
unamortized premium on mortgage-backed securities is approximately $2,505,000.
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.
32
34
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 $1.4 billion at December 31, 1998
to $1.5 billion at December 31, 1999. At December 31, 1999, BancGroup had $283
million in mortgage backed securities purchased under a reverse repurchase
agreement. These securities are collateral for $299 million in debt outstanding
in connection with the purchase of these securities.
At December 31, 1999, 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 10% of shareholders' equity ($70 million).
The changes noted above are reflected on the following table.
SECURITIES BY CATEGORY
CARRYING VALUE AT DECEMBER 31,
----------------------------------
1999 1998 1997
---------- ---------- --------
(IN THOUSANDS)
Investment securities:
U.S. Treasury securities & obligations of U.S. government
agencies............................................... $ 1,581 $ 83,322 $172,065
Mortgage-backed securities................................ 24,833 45,037 85,298
Obligations of state and political subdivisions........... 33,620 41,185 54,036
Other..................................................... 1,648 1,410 1,741
---------- ---------- --------
Total............................................. $ 61,682 $ 170,954 $313,140
========== ========== ========
Securities available for sale:
U.S. Treasury securities & obligations of U.S. government
agencies............................................... $ 166,799 $ 152,162 $350,398
Mortgage-backed securities................................ 1,089,249 1,030,801 256,396
Obligations of state and political subdivisions........... 71,652 58,316 40,233
Other..................................................... 162,291 172,939 8,837
---------- ---------- --------
Total............................................. $1,489,991 $1,414,218 $655,864
========== ========== ========
33
35
The carrying value of securities at December 31, 1999 mature as follows:
MATURITY DISTRIBUTION OF SECURITIES
WITHIN 1 YEAR 1-5 YEARS 5-10 YEARS OVER 10 YEARS
-------------------- ----------------- ---------------- -----------------
AVERAGE AVERAGE AVERAGE AVERAGE
AMOUNT RATE AMOUNT RATE AMOUNT RATE AMOUNT RATE
---------- ------- ------- ------- ------ ------- ------- -------
(IN THOUSANDS)
Investment securities:
U.S. Treasury securities and
obligations of U.S. government
agencies....................... $ 750 5.64% $ 331 6.40% $ -- --% $ 500 7.25%
Mortgage-backed securities....... 3,209 6.74 11,631 6.97 1,916 7.25 8,075 7.45
Obligations of state and
political subdivisions(1)...... 3,825 4.80 17,838 5.17 7,024 5.32 4,933 6.01
Other............................ 95 6.00 1,555 6.50 -- -- -- --
---------- ---- ------- ---- ------ ---- ------- ----
Total............................ $ 7,879 5.68% $31,355 5.92% $8,940 5.73% $13,508 6.92%
========== ==== ======= ==== ====== ==== ======= ====
Securities available for sale(2):
U.S. Treasury securities and
obligations of U.S. government
agencies....................... $ 166,799 5.61%
Mortgage-backed securities....... 1,089,249 6.33
Obligations of state and
political subdivisions(1)...... 71,652 4.95
Other............................ 80,903 6.86
---------- ----
Total..................... $1,408,603 6.21%
========== ====
- ---------------
(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 stock
since these instruments have no maturity date.
MORTGAGE SERVICING RIGHTS AND SERVICING HEDGE
The balances of MSR were $238 million and $183 million at December 31, 1999
and 1998, respectively. The Company, with the assistance of a third party
advisor, developed a strategy to hedge against future decreases in interest
rates. In October 1998, the Company began to hedge a portion of its servicing
portfolio and related MSR asset. At December 31, 1999 and 1998, the Company had
hedged approximately 58% and 52% of the MSR asset primarily through the use of
floors and principal-only strips in 1999 and Treasury futures and options in
1998. The hedge positions are monitored daily and adjusted as necessary for
changes in the market and projected interest rate movement. The objective of
this strategy is to achieve a high degree of correlation between changes in
value associated with the hedged asset (the servicing portfolio and the related
servicing rights) and the servicing hedge. The servicing hedge is designed to
rise in value when interest rates fall and decline in value when interest rates
rise, in contrast to the expected movements in value of the servicing asset,
therefore reducing earnings volatility caused by interest rate movements.
These risk-management activities do not eliminate interest-rate risk in the
MSR. Treasury rates, to which portions of the MSR hedges are indexed, may not
move in tandem with mortgage interest rates. As mortgage interest rates change,
actual prepayments may not respond exactly as anticipated. Other pricing
factors, such as the volatility of the market yields, may affect the value of
the hedges without similarly impacting the MSR. (Refer to Notes 6 and 7 to the
Consolidated Financial Statements for additional information.)
34
36
DEPOSITS
BancGroup's deposit structure consists of the following:
DECEMBER 31, % OF TOTAL
----------------------- -------------
1999 1998 1999 1998
---------- ---------- ----- -----
(IN THOUSANDS)
Noninterest-bearing demand deposits............. $1,326,880 $1,548,082 16.7% 20.8%
Interest-bearing demand deposits................ 1,696,802 1,747,321 21.3 23.4
Savings deposits................................ 572,113 560,308 7.2 7.5
Certificates of deposits less than $100,000..... 2,872,044 2,222,301 36.0 29.8
Certificates of deposits more than $100,000..... 1,140,001 1,002,503 14.3 13.5
IRA's........................................... 309,562 316,844 3.9 4.3
Open time deposits.............................. 50,576 48,794 0.6 0.7
---------- ---------- ----- -----
Total deposits........................ $7,967,978 $7,446,153 100.0% 100.0%
========== ========== ===== =====
BancGroup, through its acquisitions and branch expansion programs, has
increased its market presence into high growth markets in the country. Prior to
1998, the expansion was concentrated in Florida and the Atlanta metropolitan
area. In 1998, Colonial continued its efforts by moving west into Dallas, Texas
and Reno and Las Vegas, Nevada. 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.
Deposits have increased $522 million or 7% in 1999. This increase includes
11% of internal growth in savings and time deposits and increased wholesale
funds offset by a decrease due to the sale of the Dalton, Georgia branches and
five supermarket branches. Due to the nature of demand deposits, balances can
fluctuate significantly on a daily basis; therefore, average balances are more
representative of their impact on corporate funding. Although these deposits
reflect a decrease of $272 million at December 31, 1999, average demand deposits
increased 6% from 1998 to 1999. Competition for deposits remains strong within
the banking industry as well as increased competition from the other business
sectors.
In the fourth quarter of 1999, BancGroup initiated several campaigns to
grow its deposit base. The high growth areas of Florida were a primary target
due to the lower cost funds in that market. These campaigns resulted in 5%
average deposit growth for the quarter, in addition to the 9.5% achieved in the
first nine months of the year in Florida. The growth of deposits continues to be
a primary strategic initiative of the Company. In January 2000, a branch
incentive plan was implemented in which a key goal is for employees to obtain an
established deposit growth rate in their branches. Management has contracted
with a database marketing consultant to target specific products and markets for
future deposit campaigns in order to more cost effectively grow deposits. Each
of these initiatives should provide a solid foundation for achieving the
Company's deposit growth objectives.
The Company has an established 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, 1999 and 1998, $609 million
and $188 million, respectively were outstanding under this program. The Company
has a brokered money market program that attracts deposits from out-of-market
customers. At December 31, 1999 and 1998, $239 million and $249 million were
outstanding, respectively.
35
37
SHORT-TERM BORROWINGS
Short-term borrowings were comprised of the following at December 31, 1999,
1998 and 1997:
1999 1998 1997
---------- ---------- --------
(IN THOUSANDS)
FHLB borrowings..................................... $ 490,000 $ 769,987 $420,000
Federal Funds purchased and securities sold under
repurchase agreements............................. 452,337 480,008 284,740
Reverse repurchase agreements....................... 150,571 184,834 12,695
Current maturities FHLB Advances.................... 100,521 50,840 1,345
Other short-term borrowings......................... -- 25,299 12,579
---------- ---------- --------
Total..................................... $1,193,429 $1,510,968 $731,359
========== ========== ========
To assist in funding loan growth, BancGroup has credit facilities at the
FHLB. At December 31, 1999 and 1998, BancGroup had borrowings of $1.2 billion
and $1.3 billion outstanding of which $573 million and $528 million,
respectively, (Note 10) are included in long-term debt with the remaining
portion included in short-term borrowings, leaving credit availability at
December 31, 1999 of $306 million based on current collateral. This credit
facility is collateralized by the Company's residential real estate loans.
Colonial Bank has an additional $500 million warehouse line with FHLB that is
collateralized by mortgage loans held for sale with no balance outstanding at
December 31, 1999.
Correspondent banks and customers provide a consistent base of short-term
funds with $452 million and $480 million outstanding at December 31, 1999 and
1998, respectively, in Fed Funds purchased and repurchase agreements.
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 1999 and 1998 to fund loan growth. As discussed
more fully in the "Liquidity and Interest Rate Sensitivity" section of this
report, the line of credit with FHLB is considered a primary source of funding
for the Company's asset growth.
BancGroup entered into reverse repurchase arrangements under which it
purchased mortgage backed securities. These securities are collateral for the
$151 million in short-term debt as well as the $132 million in long-term debt.
In July 1998, the Company entered into a term note with an unaffiliated
financial institution for $25 million. This note was paid in full upon maturity.
During 1999, BancGroup entered into a revolving credit facility with an
unaffiliated financial institution totaling $25 million of which none was
outstanding at December 31, 1999.
LIQUIDITY AND INTEREST RATE 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 interest 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
36
38
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 1997 through 1999, the significant changes in BancGroup's cash flows
have centered on loan growth and fluctuations in mortgage loans held for sale.
Loan growth of $1.2 billion in 1999 and $974 million in 1998 has been one of the
principal uses of cash in both years. Mortgage loans held for sale decreased in
1999 providing $659 million in funds compared to an increase in 1998 using $454
million in funds. The increase in deposits, excluding acquisitions, of $522
million in 1999 and $800 million in 1998 provided the primary source of funding
for internal loan growth. Short-term borrowings, excluding acquisitions
decreased $367 million in 1999 and increased $646 million in 1998 as a result of
the funding requirements of mortgage loans held for sale and internal loan
growth. Management has chosen to fund fluctuations in the volume of mortgage
loans held for sale with short-term borrowings as opposed to increasing rate
sensitive deposits.
BancGroup had $2.5 billion and $2.4 billion of residential real estate
loans at December 31, 1999 and 1998, respectively. These loans provide
collateral for the current $2.0 billion credit facility at the FHLB. At December
31, 1999, the FHLB unused line of credit was $837 million of which $306 million
was available based on current collateral. This line provides the Company
significant flexibility in asset/liability management, liquidity and deposit
pricing.
On March 16, 1999, Colonial Bank issued $100 million in 8% Subordinated
Notes due March 15, 2009. These notes are not subject to redemption prior to
maturity and pay interest semiannually on March 15 and September 15. This
subordinated debt qualifies as Tier II capital. In July 1999, the Company
entered into a revolving credit facility with an unaffiliated financial
institution totaling $25 million of which none was outstanding at December 31,
1999. This facility bears interest at a rate of 0.85% above LIBOR and expires in
July 2000.
In 1998, BancGroup entered into reverse repurchase arrangements under which
it purchased mortgage backed securities. At December 31, 1999 these securities
are collateral for the $151 million in short-term debt as well as the $132
million in long-term debt.
During 1998, and in connection with the acquisition of ASB Bancshares,
Inc., BancGroup issued $7.73 million of variable rate subordinated debentures.
The debentures bear interest equal to the New York Prime Rate minus 1% (but not
less than 7%). BancGroup had an outstanding term note with an unaffiliated
financial institution in the amount of $25 million at December 31, 1998 which
was paid in full upon maturity.
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 was utilized to pay off
a term note and revolving debt outstanding. The remainder of the proceeds was
used for acquisitions and other business purposes.
BancGroup has outstanding, $33.4 million and $31.8 million of Bank-Owned
Life Insurance ("BOLI") at December 31, 1999 and 1998, respectively. 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.
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 the holding company only
statement of cash flows (Note 24) were $7.7 million for the payment of interest
on debt, $25.0 million for the reduction of short-term borrowings
37
39
and $42.3 million for the payment of dividends. The holding company's primary
sources of funds were $79.0 million in dividends received from its subsidiaries.
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 $79 million
of retained earnings plus certain 2000 earnings would be available for
distribution to BancGroup, from its subsidiaries, as dividends in 2000 without
prior approval from the respective regulatory authorities. The holding company
anticipates that the cash flow needs of the holding company are well below the
regulatory dividend restrictions of its subsidiary bank.
At December 31, 1999, BancGroup's liquidity position was adequate with loan
maturities of $2.3 billion, or 28% of the total loan portfolio, due within one
year. Securities totaling $1.4 billion or 91% of the total portfolio also had
maturities within one year or have been classified as available for sale. As of
December 31, 1999, there were, however, no current plans to dispose of any
significant portion of these securities. In addition BancGroup has $306 million
in additional borrowing capacity at the FHLB, $25 million available through a
warehouse line with FHLB, $492 million from Fed Fund lines and $25 million from
a revolving credit facility with an unaffiliated financial institution.
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
10.90% 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
interest-sensitive assets, interest-sensitive liabilities, and off-balance-sheet
contracts. Following are the estimated impacts of immediate changes in interest
rates at the specified levels at December 31, 1999.
PERCENTAGE CHANGE IN
-----------------------------------------------
BASIS POINTS NET INTEREST INCOME(1) NET PORTFOLIO VALUE(2)
- ------------ ---------------------- ----------------------
+200................................................... 0% (3)%
+100................................................... (1) 0
- -100................................................... 0 (1)
- -200................................................... (1) (5)
- ---------------
(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 discussed above. Additionally, as previously discussed, the
Company has developed a strategy to hedge its MSR asset against future
fluctuations in interest rates through the use of hedging instruments. The
objective of this strategy is to maintain a correlation over time between the
value of MSR and the servicing hedge. At
38
40
December 31, 1999, the Company had hedged approximately 58% of its MSR asset.
(Refer to more detailed discussions of the hedging activities included in
Management's Discussion under Mortgage Servicing Rights and Servicing Hedge and
Notes 6 and 7 to the Consolidated Financial Statements.)
The following table summarizes BancGroup's interest rate sensitivity at
December 31, 1999.
AT DECEMBER 31, 1999
------------------------------------------------------------------------------
INTEREST SENSITIVE WITHIN
------------------------------------------------------------------------------
TOTAL 0-90 91-180 181-365 1-5 OVER
BALANCE DAYS DAYS DAYS YEARS 5 YEARS
----------- ---------- ----------- ----------- ---------- ----------
(IN THOUSANDS)
RATE SENSITIVE ASSETS:
Federal Funds sold and resale
Agreements................... $ 30,482 $ 30,482 $ -- $ -- $ -- $ --
Investment securities.......... 61,682 4,597 2,610 5,023 30,254 19,198
Securities available for
sale......................... 1,489,991 118,342 12,787 30,519 241,747 1,086,596
Mortgage loans held for sale... 33,150 33,150 -- -- -- --
----------- ---------- ----------- ----------- ---------- ----------
Loans, net of unearned
income....................... 8,228,149 3,303,621 434,182 768,505 3,468,796 253,045
Allowances for possible loan
losses....................... (95,993) (38,541) (5,065) (8,966) (40,469) (2,952)
----------- ---------- ----------- ----------- ---------- ----------
Net loans........................ 8,132,156 3,265,080 429,117 759,539 3,428,327 250,093
Nonearning assets................ 1,106,638 -- -- -- -- 1,106,638
----------- ---------- ----------- ----------- ---------- ----------
Total Assets............ $10,854,099 $3,451,651 $ 444,514 $ 795,081 $3,700,328 $2,462,525
=========== ========== =========== =========== ========== ==========
RATE SENSITIVE LIABILITIES:
Interest-bearing demand
deposits..................... $ 1,696,802 $ 387,812 $ 339,360 $ -- $ 944,573 $ 25,057
Savings deposits............... 572,113 198,118 114,423 -- 237,587 21,985
Certificates of deposits less
than $100,000................ 2,872,044 858,434 753,692 803,392 457,214 414
Certificates of deposits more
than $100,000................ 1,140,001 348,177 274,943 344,199 172,548 134
IRAs........................... 309,562 64,191 65,315 73,148 106,581 327
Open time deposits............. 50,576 44,891 1,193 1,123 2,267 --
Short-term borrowings.......... 1,193,429 1,017,908 100,521 75,000 -- --
Long-term debt................. 889,571 7,725 -- -- 565,487 316,359
Noncosting liabilities &
equity......................... 2,130,001 -- -- -- -- 2,130,001
----------- ---------- ----------- ----------- ---------- ----------
Total Liabilities &
Equity................ $10,854,099 $2,927,256 $ 1,649,447 $ 1,296,862 $2,486,257 $2,494,277
=========== ========== =========== =========== ========== ==========
Gap.............................. $ -- $ 524,395 $(1,204,933) $ (501,781) $1,214,071 $ (31,752)
=========== ========== =========== =========== ========== ==========
Cumulative Gap................... $ -- $ 524,395 $ (680,538) $(1,182,319) $ 31,752 $ --
=========== ========== =========== =========== ========== ==========
The two lines of the preceding table is the interest rate sensitivity gap
that 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
and analysis have 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 $1.2 billion with a corresponding cumulative gap at one year
of negative $2.4 billion.
39
41
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. The Company's
dividend payout ratio target range is 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 net profits for the fiscal year in which the dividend is
declared or the preceding fiscal year.
BancGroup also has access to equity capital markets through both public and
private issuances. Management considers these sources and related return in
addition to internally generated capital in evaluating future expansion or
acquisition opportunities.
The Federal Reserve Board has issued guidelines identifying minimum Tier I
leverage ratios relative to total assets and minimum capital ratios relative to
risk-adjusted assets. The minimum leverage ratio is 3% but is increased from 100
to 200 basis points based on a review of individual banks by the Federal
Reserve. The minimum risk adjusted capital ratios established by the 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
(subject to regulatory review) as of December 31, 1999 are stated below:
Capital (thousands)
Tier I Capital:
Shareholders' equity (excluding unrealized gain on
securities available for sale, disallowed MSRs and
intangibles plus Trust Preferred Securities).......... $ 699,094
Tier II Capital:
Allowable loan loss reserve............................... 95,993
Subordinated debt......................................... 112,048
-----------
Total Capital..................................... $ 907,135
Risk Adjusted Assets (thousands)............................ $ 8,022,518
Total Assets (thousands).......................... $10,854,099
1999 1998
----- ----
Tier I leverage ratio....................................... 6.58% 6.08%
Risk Adjusted Capital Ratios:
Tier I Capital Ratio................................... 8.71% 8.50%
Total Capital Ratio............................... 11.31% 9.85%
BancGroup has increased capital gradually through normal earnings retention
as well as through stock registrations to capitalize acquisitions. The increases
in the ratios shown above are primarily due to normal earnings retention
partially offset by asset growth. The total capital ratio also increased due to
the previously discussed issuance in March 1999 of $100 million in subordinated
debentures which qualifies as Tier II 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.
40
42
Colonial Bank is also required by law to maintain noninterest-bearing
deposits with the Federal Reserve Bank to meet regulatory reserve requirements.
At December 31, 1999, these deposits were not material to BancGroup's funding
requirements.
FINANCIAL ACCOUNTING STANDARDS BOARD RELEASES
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities" which establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. It requires that entities recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. If certain conditions are
met, a derivative may be specifically designated as (a) a hedge of the exposure
to changes in the fair value of a recognized asset or liability or an
unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows
of a forecasted transaction, or (c) a hedge of the foreign currency exposure of
a net investment in a foreign operation, an unrecognized firm commitment, an
available-for-sale security, or a foreign-currency-denominated forecasted
transaction. The accounting for changes in the fair value of a derivative (that
is, gains and losses) depends on the intended use of the derivative and the
resulting designation.
Under this Statement, an entity that elects to apply hedge accounting is
required to establish at the inception of the hedge the method it will use for
assessing the effectiveness of the hedging derivative and the measurement
approach for determining the ineffective aspect of the hedge. Those methods must
be consistent with the entity's approach to managing risk.
On September 23, 1999, the Financial Accounting Standards Board issued SFAS
No. 137, "Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No. 133," an
amendment to delay the effective date of SFAS No. 133. The effective date for
this statement will be delayed from fiscal years beginning after June 15, 1999
to fiscal years beginning after June 15, 2000. Management is currently
evaluating the impact that SFAS No. 133 and SFAS No. 137 will have on
BancGroup's financial statements.
On October 12, 1998, the Financial Accounting Standards Board issued SFAS
No. 134 "Accounting for Mortgage-Backed Securities after the Securitization of
Mortgage Loans Held For Sale by a Mortgage Banking Enterprise." This statement
is effective for the first fiscal quarter beginning after December 15, 1998. The
Company is not currently involved in these activities and therefore the adoption
of SFAS No. 134 has had no impact on BancGroup's financial statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required by Regulation S-X
and by Item 302 of Regulation S-K are set forth in the pages listed below.
PAGE
----
Report of Independent Accountants........................... 42
Consolidated Statements of Condition as of December 31, 1999
and 1998.................................................. 43
Consolidated Statements of Income for the years ended
December 31, 1999, 1998, and 1997......................... 44
Consolidated Statements of Comprehensive Income for the
years ended December 31, 1999, 1998, 1997................. 45
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1999, 1998, and 1997............. 46
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998, and 1997......................... 47
Notes to Consolidated Financial Statements.................. 48
Quarterly Results (Unaudited)............................... 11
41
43
REPORT OF INDEPENDENT ACCOUNTANTS
To The Board of Directors and Shareholders
The Colonial BancGroup, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, comprehensive income, changes in
shareholders' equity and cash flows present fairly, in all material respects,
the financial position of The Colonial BancGroup, Inc. and its subsidiaries at
December 31, 1999 and 1998, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1999, in conformity
with accounting principles generally accepted in the United States. 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 of these statements in accordance with
auditing standards generally accepted in the United States, which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Montgomery, Alabama
February 28, 2000
42
44
THE COLONIAL BANCGROUP, INC.
CONSOLIDATED STATEMENTS OF CONDITION
DECEMBER 31,
-------------------------
1999 1998
----------- -----------
(DOLLARS IN THOUSANDS)
ASSETS
Cash and due from banks..................................... $ 338,433 $ 437,719
Interest-bearing deposits in banks and federal funds sold... 30,482 57,247
Securities available for sale (Note 3)...................... 1,489,991 1,414,218
Investment securities (market value: 1999, $61,922, 1998,
$173,542)................................................. 61,682 170,954
Mortgage loans held for sale................................ 33,150 692,042
Loans, net of unearned income (Note 4)...................... 8,228,149 7,110,295
Less:
Allowance for possible loan losses (Note 5)............... (95,993) (83,562)
----------- -----------
Loans, net......................................... 8,132,156 7,026,733
Premises and equipment, net (Note 8)........................ 190,946 181,617
Excess of cost over tangible and identified intangible
assets
Acquired, net........................................... 79,468 84,893
Mortgage servicing rights (Note 7).......................... 238,405 183,469
Other real estate owned..................................... 9,215 8,728
Accrued interest and other assets........................... 250,171 198,665
----------- -----------
Total.............................................. $10,854,099 $10,456,285
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand................................ $ 1,326,880 $ 1,548,082
Interest-bearing demand................................... 1,696,802 1,747,321
Savings................................................... 572,113 560,308
Time...................................................... 4,372,183 3,590,442
----------- -----------
Total deposits..................................... 7,967,978 7,446,153
FHLB short-term borrowings (Note 9)......................... 490,000 769,987
Other short-term borrowings (Note 9)........................ 703,429 740,981
Subordinated debt (Note 10)................................. 112,048 12,542
Trust preferred securities (Note 10)........................ 70,000 70,000
FHLB long-term debt (Note 10)............................... 572,549 528,163
Other long-term debt (Note 10).............................. 134,974 135,742
Other liabilities........................................... 107,942 112,910
----------- -----------
Total liabilities.................................. 10,158,920 9,816,478
Commitments and contingencies (Notes 6, 13, 16)
Shareholders' equity (Notes 2, 11)
Common Stock, $2.50 par value; 200,000,000 shares
authorized;
112,106,663 and 110,962,365 shares issued
at December 31, 1999 and December 31, 1998,
respectively............................................ 280,267 277,406
Treasury Stock (26,501 shares at December 31, 1998)....... -- (355)
Additional paid in capital................................ 118,728 113,469
Retained earnings......................................... 326,578 249,297
Unearned compensation..................................... (1,622) (2,348)
Accumulated other comprehensive income, net of taxes...... (28,772) 2,338
----------- -----------
Total shareholders' equity......................... 695,179 639,807
----------- -----------
Total.............................................. $10,854,099 $10,456,285
=========== ===========
See Notes to Consolidated Financial Statements
43
45
THE COLONIAL BANCGROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
--------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
INTEREST INCOME:
Interest and fees on loans.................................. $674,175 $604,493 $512,213
Interest and dividends on securities:
Taxable................................................... 88,873 73,829 57,107
Nontaxable................................................ 4,631 4,815 4,601
Dividends................................................. 5,670 4,764 3,141
Interest on federal funds sold and securities purchased
under Resale agreements................................... 1,875 4,661 5,738
Other interest.............................................. 710 980 837
-------- -------- --------
Total interest income............................. 775,934 693,542 583,637
-------- -------- --------
INTEREST EXPENSE:
Interest on deposits........................................ 273,608 256,446 232,898
Interest on short-term borrowings........................... 66,756 54,866 40,825
Interest on long-term debt.................................. 57,626 39,129 11,048
-------- -------- --------
Total interest expense............................ 397,990 350,441 284,771
-------- -------- --------
NET INTEREST INCOME......................................... 377,944 343,101 298,866
Provision for possible loan losses (Notes 1, 5)............. 28,707 26,345 16,321
-------- -------- --------
NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE
LOAN LOSSES..................................... 349,237 316,756 282,545
-------- -------- --------
NONINTEREST INCOME:
Mortgage servicing fees..................................... 50,796 44,308 38,352
Service charges on deposit accounts......................... 38,490 37,360 31,402
Securities gains, net (Note 3).............................. 497 1,449 669
Other charges, fees and commissions......................... 9,764 9,128 8,854
Other income................................................ 42,692 33,013 21,668
-------- -------- --------
Total noninterest income.......................... 142,239 125,258 100,945
-------- -------- --------
NONINTEREST EXPENSE:
Salaries and employee benefits.............................. 121,717 121,445 105,287
Occupancy expense of bank premises, net..................... 30,271 28,291 23,821
Furniture and equipment expenses............................ 27,924 24,787 20,086
Amortization and impairment of mortgage servicing rights.... 34,478 62,909 17,123
Amortization of intangible assets........................... 5,241 4,927 3,206
Year 2000 expense........................................... 560 4,617 432
Acquisition and restructuring expense....................... 1,307 21,535 6,463
Other expense (Note 19)..................................... 80,054 86,901 65,296
-------- -------- --------
Total noninterest expense......................... 301,552 355,412 241,714
-------- -------- --------
INCOME BEFORE INCOME TAXES.................................. 189,924 86,602 141,776
Applicable income taxes (Note 20)........................... 70,327 31,406 51,414
-------- -------- --------
NET INCOME.................................................. $119,597 $ 55,196 $ 90,362
======== ======== ========
EARNINGS PER SHARE (NOTE 21):
Basic.................................................. $ 1.07 $ 0.50 $ 0.86
Diluted................................................ 1.06 0.49 0.84
AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic.................................................. 111,678 110,062 105,010
Diluted................................................ 113,252 112,431 108,396
See Notes to Consolidated Financial Statements.
44
46
THE COLONIAL BANCGROUP, INC.
CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME
YEAR ENDED DECEMBER 31,
----------------------------
1999 1998 1997
-------- ------- -------
NET INCOME.................................................. $119,597 $55,196 $90,362
OTHER COMPREHENSIVE INCOME, NET OF TAXES:
Unrealized gains (losses) on securities available for sale
arising during the period, net of taxes................ (30,787) 1,880 2,398
Less: reclassification adjustment for net (gains) losses
included in net income, net of taxes................... (323) (1,784) (429)
-------- ------- -------
COMPREHENSIVE INCOME........................................ $ 88,487 $55,292 $92,331
======== ======= =======
See Notes to Consolidated Financial Statements
45
47
THE COLONIAL BANCGROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER TOTAL
---------------------- PAID IN RETAINED UNEARNED COMPREHENSIVE SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS COMPENSATION INCOME EQUITY
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996........ 98,622,116 $246,555 $ 73,382 $165,056 $(1,603) $ 327 $483,717
- ---------------------------------------------------------------------------------------------------------------------------------
Issuance of shares for immaterial
poolings:
Tomoka Bancorporation............ 1,323,984 3,310 (27) 3,043 (23) 6,303
Great Southern Bancorp........... 1,855,622 4,639 2,968 2,514 (25) 10,096
First Independence Bank of
Florida........................ 1,007,864 2,520 4,374 (1,430) (25) 5,439
Shares issued under:
Directors Plan................... 62,164 155 348 503
Stock Option Plans............... 1,339,778 3,349 2,054 5,403
Dividend Reinvestment Plan....... 84,398 211 737 948
Stock Bonus Plan................. 46,024 115 385 (78) 422
Employee Stock Purchase Plan..... 32,784 82 344 426
Issuance of common stock by pooled
banks prior to merger............ 902,296 2,256 6,514 (4,905) (69) 3,796
Purchase of treasury stock for
issuance in business
combination...................... (1,342,330) (3,356) (12,531) (15,887)
Issuance of shares for business
combinations..................... 2,032,518 5,081 17,177 22,258
Net income........................ 90,362 90,362
Cash dividends ($.30 per share)... (24,957) (24,957)
Cash dividends by pooled banks
prior to merger.................. (3,170) (3,170)
Treasury stock activity by pooled
banks prior to merger............ (40,913) (102) (24) (126)
Conversion of 7 1/2% convertible
debt............................. 326,328 816 1,469 2,285
Conversion of 7% convertible
debt............................. 30,342 76 154 230
Change in unrealized gain on
securities
available for sale, net of
taxes.......................... 1,969 1,969
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997........ 106,282,975 265,707 97,324 226,513 (1,750) 2,223 590,017
- ---------------------------------------------------------------------------------------------------------------------------------
Issuance of shares for immaterial
poolings:
CNB Holding Company.............. 1,767,562 4,419 (4,125) 7,965 19 8,278
Shares issued under:
Directors Plan................... 79,092 198 621 819
Stock Option Plans............... 1,513,701 3,784 794 4,578
Stock Bonus Plan................. 94,080 235 1,506 (598) 1,143
Employee Stock Purchase Plan..... 47,221 118 571 689
Issuance of common stock by pooled
banks prior to merger............ 88,714 222 5,341 (4,000) 1,563
Purchase of treasury stock for
issuance in business
combination...................... (1,275,000) (3,188) (13,912) (17,100)
Issuance of shares for business
combinations..................... 2,183,013 5,458 24,185 29,643
Net income........................ 55,196 55,196
Cash dividends ($.34 per share)... (35,869) (35,869)
Cash dividends by pooled banks
prior to merger.................. (508) (508)
Conversion of 7 1/2% convertible
debt............................. 181,007 453 809 1,262
Change in unrealized gain on
securities available for sale,
net of taxes..................... 96 96
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998........ 110,962,365 277,406 113,114 249,297 (2,348) 2,338 639,807
- ---------------------------------------------------------------------------------------------------------------------------------
Shares issued under:
Directors Plan................... 60,435 151 860 1,011
Stock Option Plans............... 774,878 1,937 2,146 4,083
Stock Bonus Plan................. (380) (1) 20 726 745
Employee Stock Purchase Plan..... 57,519 144 551 695
401k Plan........................ 118,359 296 1,137 1,433
Dividend Reinvestment Plan....... 62,923 158 582 740
Net income........................ 119,597 119,597
Cash dividends ($.38 per share)... (42,316) (42,316)
Conversion of 7 1/2% convertible
debt............................. 70,564 176 318 494
Change in unrealized gain (loss)
on securities available for sale,
net of taxes..................... (31,110) (31,110)
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999........ 112,106,663 $280,267 $118,728 $326,578 $(1,622) $(28,772) $695,179
- ---------------------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements
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THE COLONIAL BANCGROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
-------------------------------------
1999 1998 1997
----------- ----------- ---------
(IN THOUSANDS)
Cash flows from operating activities:
Net income................................................ $ 119,597 $ 55,196 $ 90,362
Adjustments to reconcile net income:
Depreciation, amortization and accretion................ 32,349 28,721 22,840
Amortization and impairment of mortgage servicing
rights................................................ 34,478 62,909 17,123
Provision for loan loss................................. 28,707 26,345 16,321
Deferred taxes.......................................... 1,794 (17,459) 612
Gain on sale of securities, net......................... (497) (1,449) (669)
(Gain) loss on sale and disposal of other assets........ (1,107) 10,627 (1,548)
Additions to mortgage servicing rights, net............. (89,413) (104,338) (52,315)
Net decrease (increase) in mortgage loans held for
sale.................................................. 658,892 (453,502) (70,679)
Increase in interest receivable......................... (19,599) (22,216) (12,814)
Increase in prepaids and other receivables.............. (6,234) (12,604) (303)
Decrease in accrued expenses & accounts payable......... (8,145) (13) (203)
(Decrease) increase in accrued income taxes............. (4,550) 5,009 1,145
Increase in interest payable............................ 11,192 7,558 10,060
Other, net.............................................. (10,899) 5,274 (11,727)
----------- ----------- ---------
Total adjustments................................... 626,968 (465,138) (82,157)
----------- ----------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES........................................ 746,565 (409,942) 8,205
----------- ----------- ---------
Cash flows from investing activities:
Proceeds from maturities of securities available for
sale.................................................... 332,641 243,325 171,207
Proceeds from sales of securities available for sale...... 201,051 716,574 55,729
Purchase of securities available for sale................. (657,166) (1,667,591) (178,824)
Proceeds from maturities of investment securities......... 109,795 207,136 230,947
Purchase of investment securities......................... (750) (65,045) (171,892)
Net increase in loans..................................... (1,153,848) (974,465) (651,318)
Purchase of bank owned life insurance..................... -- -- (30,000)
Cash received in bank acquisitions........................ -- 80,682 28,242
Capital expenditures...................................... (40,522) (46,865) (46,281)
Proceeds from sale of other real estate owned............. 16,878 16,204 3,619
Other, net................................................ 7,277 516 3,478
----------- ----------- ---------
NET CASH USED IN INVESTING ACTIVITIES............... (1,184,644) (1,489,529) (585,093)
----------- ----------- ---------
Cash flows from financing activities:
Net increase in demand, savings, and time deposits........ 521,826 799,522 525,507
Net (decrease) increase in federal funds purchased,
repurchase agreements and other short-term borrowings... (367,220) 646,386 72,366
Proceeds from issuance of long-term debt.................. 404,976 560,232 70,029
Repayment of long-term debt............................... (211,675) (2,307) (16,996)
Purchase of treasury stock for issuance in a business
combination............................................. -- (17,100) (16,013)
Proceeds from issuance of common stock.................... 6,437 6,830 10,573
Dividends paid............................................ (42,316) (36,377) (28,127)
----------- ----------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES........... 312,028 1,957,186 617,339
----------- ----------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS........ (126,051) 57,715 40,451
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.............. 494,966 437,251 396,800
----------- ----------- ---------
CASH AND CASH EQUIVALENTS AT DECEMBER 31............ $ 368,915 $ 494,966 $ 437,251
=========== =========== =========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest................................................ $ 386,798 $ 342,883 $ 274,711
Income taxes............................................ 74,813 37,881 49,657
Non-cash investing activities:
Transfer of loans to other real estate.................. $ 17,249 $ 10,865 $ 15,657
Origination of loans for the sale of other real
estate................................................ -- 399 643
Non-cash financing activities:
Conversion of subordinated debentures to common stock... $ 494 $ 1,262 $ 2,515
Assets acquired in business combinations................ -- 277,810 488,839
Liabilities assumed in business combinations............ -- 247,464 526,741
Reissuance of treasury stock for business
combinations.......................................... 16,745 16,343
See Notes to Consolidated Financial Statements
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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 industries. 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 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, 1999 and 1998 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.
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50
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 interest rate, while all
collateral-dependent loans are measured for impairment based on the fair value
of the collateral. Smaller balance homogeneous loans that 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 charge offs have been fully recovered. Interest income recognized on a
cash basis was immaterial for the years ended December 31, 1999, 1998 and 1997.
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
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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 the loan balance prior to foreclosure, plus certain
costs incurred for improvements to the property ("cost") or market value less
estimated costs to sell the property. 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, analyses, including undiscounted income projections, are made to
determine if adjustments to carrying value or amortization periods are
necessary.
MORTGAGE SERVICING RIGHTS, AMORTIZATION AND IMPAIRMENT. BancGroup
recognizes as separate assets the rights to service mortgage loans for others,
whether the servicing rights are acquired through a separate purchase or through
loan origination activities. The total cost of mortgage loans held for sale is
allocated to mortgage loans held for sale and mortgage servicing rights, based
on their relative fair values at date of sale. Amortization of mortgage
servicing rights ("MSR") is based on the ratio of net servicing income received
in the current period to total net servicing income projected to be realized
from the MSR. Projected net servicing income is based on the estimated remaining
life of the underlying mortgage loan portfolio, which declines over time from
prepayments and scheduled loan amortization. The Company estimates future
prepayment rates based on current interest rate levels, other economic
conditions and market forecasts, as well as relevant characteristics of the
servicing portfolio, such as loan types, interest rate stratification and recent
prepayment experience. The carrying value of MSR is evaluated for impairment,
which is recognized in the statement of income during the period in which
impairment occurs as an adjustment to a valuation allowance. For purposes of
performing its impairment evaluation, the Company stratifies its portfolio on
the basis of certain risk characteristics including loan type (fixed or
adjustable) and note rate and determines the fair value of MSR based on market
prices for similar MSR and estimates of future net servicing income, considering
market consensus loan prepayment predictions, interest rates, service costs and
other economic factors.
HEDGING OF MSR. BancGroup acquires derivative contacts that are expected
to change in value inversely to the movement of interest rates ("Servicing
Hedges"). These derivatives include Treasury options, futures, CMT floors, CMS
floors, PO strips and interest rate swaps. The Servicing Hedges are designed to
protect the value of the hedged MSR from the effects of increased prepayment
activity that generally results from declining interest rates. The value of the
hedging instruments and options is derived from underlying instruments; however,
the notional or contractual amount is not recognized in the balance sheet. The
carrying value of the MSR is adjusted for realized and unrealized gains and
losses in the derivative financial instruments that qualify for hedge
accounting. For the years ended December 31, 1999 and 1998, the unrealized loss
on the Servicing Hedges was $53,672,000 and $4,339,000, respectively, and was
included in the carrying value of MSR. To qualify for hedge accounting, changes
in net value of the Servicing Hedges are expected to be highly correlated with
changes in the value of the hedged MSR throughout the hedge period, and the
Servicing Hedges are designated to a specific portion of the MSR asset, 58% at
December 31, 1999 and 52% at December 31, 1998. The Company measures initial and
ongoing correlation by statistical analysis and dollar value offset comparison
of the relative movements of the Servicing Hedges and related MSR. If
correlation were to cease on the derivatives hedging MSR, they would then be
accounted for as trading
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instruments. If a derivative contract hedging MSR is terminated, the gain or
loss is treated as an adjustment to the carrying value of the hedged MSR and
amortized over its remaining life.
The servicing portfolio is geographically disbursed throughout the United
States with a concentration in the southern states.
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 amounts
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 20). 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. SFAS No. 123, "Accounting for Stock-Based
Compensation," 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.
ADVERTISING COSTS. Advertising costs are expensed as incurred.
RECLASSIFICATIONS. Certain reclassifications have been made to the 1998
financial statements to conform to the 1999 presentations.
RECENTLY ISSUED ACCOUNTING STANDARDS. In June 1998, the Financials
Accounting Standards Board issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities" which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, (collectively referred to as derivatives) and for
hedging activities. It requires that entities recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. If certain conditions are met, a derivative may
be specifically designated as (a) a hedge of the exposure to changes in the fair
value of a recognized asset or liability or an unrecognized firm commitment, (b)
a hedge of the exposure to variable cash flows of a forecasted transaction, or
(c) a hedge of the foreign currency exposure of a net investment in a foreign
operation, an unrecognized firm commitment, an available-for-sale security, or a
foreign-currency-denominated forecasted transaction. The accounting for changes
in the fair value of a derivative (that is, gains and losses) depends on the
intended use of the derivative and the resulting designation.
Under this Statement, an entity that elects to apply hedge accounting is
required to establish at the inception of the hedge the method it will use for
assessing the effectiveness of the hedging derivative and the measurement
approach for determining the ineffective aspect of the hedge. Those methods must
be consistent with the entity's approach to managing risk.
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53
On September 23, 1999, the Financial Accounting Standards Board issued SFAS
No. 137, "Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No. 133," an
amendment to delay the effective date of SFAS No. 133. The effective date for
this statement will be delayed from fiscal years beginning after June 15, 1999
to fiscal years beginning after June 15, 2000. Management is currently
evaluating the impact that SFAS No. 133 and SFAS No. 137 will have on
BancGroup's financial statements.
On October 12, 1998, the Financial Accounting Standards Board issued SFAS
No. 134 "Accounting for Mortgage-Backed Securities after the Securitization of
Mortgage Loans Held For Sale by a Mortgage Banking Enterprise." This statement
is effective for the first fiscal quarter beginning after December 15, 1998. The
Company is not currently involved in these activities and therefore the adoption
of SFAS No. 134 has had no impact on BancGroup's financial statements.
2. BUSINESS COMBINATIONS
During the years ended December 31, 1998 and 1997, BancGroup completed the
following business combinations with other financial institutions. These
business combinations have been reflected in the financial statements. The
balances reflected are as of the date of consummation.
(IN THOUSANDS) ACCOUNTING DATE BANCGROUP CASH TOTAL TOTAL TOTAL
FINANCIAL INSTITUTIONS TREATMENT CONSUMMATED SHARES PAID(2) ASSETS LOANS DEPOSITS
- ---------------------- ---------- ----------- --------- ------- -------- -------- --------
1997
Jefferson Bancorp, Inc.
(FL)....................... Pooling 01/03/97 7,709,904 $472,732 $322,857 $405,836
Tomoka Bancorp, Inc. (FL).... Pooling(1) 01/03/97 1,323,984 76,700 51,600 68,200
First Family Financial Corp.
(FL)....................... Purchase 01/09/97 661,128 $ 6,492 167,300 117,500 156,700
D/W Bankshares, Inc. (GA).... Pooling 01/31/97 2,033,096 138,686 71,317 124,429
Shamrock Holdings, Inc.
(AL)....................... Purchase 03/05/97 -- 11,813 54,500 19,300 46,400
Fort Brooke Bancorporation
(FL)....................... Pooling 04/22/97 3,199,946 208,800 141,500 185,800
Great Southern Bancorp
(FL)....................... Pooling(1) 07/01/97 1,855,622 121,009 98,100 106,673
First Commerce Banks of
Florida, Inc. (FL)......... Purchase(3) 07/01/97 1,371,390 97,093 64,472 88,302
Dadeland BancShares, Inc.
(FL)....................... Purchase 09/15/97 -- 38,000 169,946 103,199 145,491
First Independence Bank of
Florida (FL)............... Pooling(1) 10/01/97 1,007,864 65,048 50,699 58,283
- --------------------------------------------------------------------------------------------------------------
1998*
United American Holding Corp.
(FL)....................... Pooling 02/02/98 4,226,412 $275,263 $197,623 $236,773
ASB Bancshares, Inc. (AL).... Purchase 02/05/98 934,514 158,656 110,093 135,940
First Central Bank (FL)...... Pooling 02/11/98 1,377,368 62,897 40,451 52,048
South Florida Banking Corp.
(FL)....................... Pooling 02/12/98 3,864,458 255,769 172,992 226,999
Commercial Bank of Nevada
(NV)....................... Pooling 06/15/98 1,684,314 129,577 86,251 117,749
CNB Holding Corporation
(FL)....................... Pooling(1) 08/12/98 1,767,562 89,893 58,456 81,445
FirstBank (TX)............... Pooling 08/31/98 2,782,038 187,445 59,664 163,254
First Macon Bank & Trust
(GA)....................... Pooling 10/01/98 4,643,025 199,525 135,651 174,774
Prime Bank of Central Florida
(FL)....................... Pooling 10/06/98 1,173,019 74,502 42,547 66,955
InterWest Bancorp (NV)....... Pooling 10/15/98 1,748,338 131,590 83,689 114,516
TB&T, Inc. (TX).............. Purchase(3) 12/01/98 1,248,499 110,986 42,689 101,335
- ---------------
* On June 18, 1998, BancGroup purchased certain assets totaling $8,168,000 and
assumed certain liabilities primarily deposits, totaling $8,871,000 of the
Wade Green branch of Premier Bank in Atlanta, Georgia.
(1) Due to the immaterial impact on BancGroup's financial Statements, prior
years have not been restated to include these poolings of interest.
(2) Does not include immaterial amounts paid in lieu of fractional shares.
(3) Shares issued included shares previously re-purchased by the Company as
treasury shares.
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The 1997 combinations with Jefferson, D/W Bankshares, and Fort Brooke and
the 1998 combinations with United American, South Florida, First Central,
Commercial Bank, FirstBank, First Macon, Prime, and InterWest Bancorp were
accounted for using the pooling-of-interests method. Accordingly, all financial
statement amounts were restated to reflect the financial condition and results
of operations as if these combinations had occurred at the beginning of the
earliest period presented. For the purchase method business combinations, the
operations and income of the combined institutions are included in the income of
BancGroup from the date of purchase.
3. SECURITIES
The carrying and market values of investment securities are summarized as
follows:
INVESTMENT SECURITIES
1999 1998
--------------------------------------------- ----------------------------------------------
AMORTIZED UNREALIZED UNREALIZED MARKET AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE
--------- ---------- ---------- ------- --------- ---------- ---------- --------
(IN THOUSANDS)
U.S. Treasury
securities and
obligations of U.S.
government
agencies............ $ 1,581 $ 22 $ (11) $ 1,592 $ 83,322 $ 574 $ (2) $ 83,894
Mortgage-backed
securities.......... 24,833 145 (176) 24,802 45,037 704 (21) 45,520
Obligations of state
and political
subdivisions........ 33,620 440 (178) 33,882 41,185 1,548 (4) 42,729
Other................. 1,648 -- (2) 1,646 1,410 1 (12) 1,399
------- ---- ----- ------- -------- ------ ----- --------
Total....... $61,682 $607 $(367) $61,922 $170,954 $2,827 $(239) $173,542
======= ==== ===== ======= ======== ====== ===== ========
The carrying and market values of securities available for sale are summarized
as follows:
SECURITIES AVAILABLE FOR SALE
1999 1998
------------------------------------------------- -------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED MARKET AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
U.S. Treasury
securities and
obligations of U.S.
government
agencies........... $ 168,727 $ 7 $ (1,935) $ 166,799 $ 151,333 $ 871 $ (42) $ 152,162
Mortgage-backed
securities......... 1,126,274 692 (37,717) 1,089,249 1,028,796 4,755 (2,750) 1,030,801
Obligations of state
and political
subdivisions....... 72,040 517 (905) 71,652 56,559 1,768 (11) 58,316
Other................ 166,189 21 (3,919) 162,291 173,722 1,256 (2,039) 172,939
---------- ------ -------- ---------- ---------- ------ ------- ----------
Total....... $1,533,230 $1,237 $(44,476) $1,489,991 $1,410,410 $8,650 $(4,842) $1,414,218
========== ====== ======== ========== ========== ====== ======= ==========
The majority of the above securities are traded on national exchanges and
as such, the market values are based upon quotes from those exchanges. The
market values of certain 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.
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Included within securities available for sale is $71,372,000 and
$79,122,000 in Federal Home Loan Bank stock at December 31, 1999 and 1998,
respectively. Securities with a carrying value of approximately $1,159,598,000
and $1,060,554,000 at December 31, 1999 and 1998 respectively, were pledged for
various purposes as required or permitted by law.
Gross gains of $595,000, $2,961,000 and $760,000 and gross losses of
$98,000, $1,512,000 and $91,000 were realized on sales of securities for 1999,
1998, and 1997, respectively.
The amortized cost and market value of debt securities at December 31,
1999, 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.
INVESTMENT SECURITIES SECURITIES AVAILABLE FOR SALE
--------------------- -----------------------------
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
---------- -------- ------------- -------------
(IN THOUSANDS)
Due in one year or less............................. $ 4,670 $ 4,678 $ 25,445 $ 25,453
Due after one year through five years............... 19,722 19,916 173,671 171,937
Due after five years through ten years.............. 7,024 7,117 32,537 32,093
Due after ten years................................. 5,433 5,409 93,915 89,871
------- ------- ---------- ----------
Total..................................... 36,849 37,120 325,568 319,354
------- ------- ---------- ----------
Mortgage-backed securities.......................... 24,833 24,802 1,126,274 1,089,249
Equity securities................................... -- -- 81,388 81,388
------- ------- ---------- ----------
Total..................................... $61,682 $61,922 $1,533,230 $1,489,991
======= ======= ========== ==========
4. LOANS
A summary of loans follows:
1999 1998
---------- ----------
(IN THOUSANDS)
Commercial, financial and agricultural...................... $1,126,191 $1,102,446
Real estate-commercial...................................... 2,538,304 2,006,851
Real estate-construction.................................... 1,435,004 1,028,471
Real estate-residential..................................... 2,528,413 2,438,236
Installment and consumer.................................... 297,555 344,860
Other....................................................... 302,860 189,934
---------- ----------
Subtotal.................................................... 8,228,327 7,110,798
Unearned income............................................. (178) (503)
---------- ----------
Total............................................. $8,228,149 $7,110,295
========== ==========
BancGroup's lending is concentrated throughout Alabama, central Georgia,
Florida, Texas and Nevada and repayment of these loans is in part dependent upon
the economic conditions in the respective regions of these 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, 1999. In the normal course
of business, loans are made to officers,
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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, 1999 are
summarized as follows:
BALANCE BALANCE
1/1/99 ADDITIONS REDUCTIONS 12/31/99
- ------- --------- ---------- --------
(IN THOUSANDS)
$24,693 $11,923 $17,377 $19,239
At December 31, 1999 and 1998, the recorded investment in loans for which
impairment has been recognized totaled approximately $23,337,000 and
$18,640,000, respectively, and these loans had a corresponding valuation
allowance of $13,787,000 and $4,813,000, respectively. The impaired loans were
measured for impairment based primarily on the value of underlying collateral.
For the years ended December 31, 1999 and 1998, the average recorded investment
in impaired loans was approximately $21,176,000 and $20,014,000. The amount of
interest recognized on impaired loans during the portion of the year that they
were impaired was not significant for either 1999 or 1998.
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.
BancGroup's international banking department became fully operational in
July 1998. The department engages in confirming letters of credit with top-tier
banks in Latin America and direct disbursements to those banks from U.S.
customers. Loans outstanding at December 31, 1999 and 1998, totaled
approximately $84 million and $97 million, respectively. However, due to the
immaterial balance of these loans in relation to total loans, these amounts will
not be disclosed separately.
5. ALLOWANCE FOR POSSIBLE LOAN LOSSES
An analysis of the allowance for possible loan losses is as follows:
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
Balance, January 1.......................................... $ 83,562 $ 72,107 $ 61,732
Addition due to acquisitions................................ -- 1,840 6,873
Provision charged to income................................. 28,707 26,345 16,321
Loans charged off........................................... (23,358) (22,657) (17,136)
Recoveries.................................................. 7,082 5,927 4,317
-------- -------- --------
Balance, December 31........................................ $ 95,993 $ 83,562 $ 72,107
======== ======== ========
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 and
to manage interest rate risk. These financial instruments include loan
commitments, standby letters of credit, obligations to deliver and sell mortgage
loans, options on interest rate futures, interest rate floors and principal only
strips. These instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the financial
statements.
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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, 1999 and
1998 are as follows:
CONTRACT AMOUNT
-----------------------
1999 1998
---------- ----------
(IN THOUSANDS)
Financial instruments whose contract amounts represent
credit risk:
Loan commitments............................................ $2,280,206 $2,541,231
Standby letters of credit................................... 182,828 99,378
Mortgage sales commitments.................................. 15,782 927,750
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. BancGroup's policy
generally requires hedging for substantially all of its held for sale inventory
and the estimated portion of the committed pipeline that is expected to close.
The correlation between the price performance of the inventory being hedged and
the sales commitments is high due to the similarity of the asset and the related
hedge instrument. BancGroup is exposed to the risk that the portion of loans
from the committed pipeline that actually closes is less than or more than the
estimated amount of closing in the event of a decline or rise in rates during
the commitment period. 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 gain in market value of these commitments was approximately $99,000
at December 31, 1999 and a loss of $2,104,000 at December 31, 1998. In October
1999, the Company sold the wholesale production unit of the mortgage banking
division. As a result of this sale, the Company entered into a third party
correspondent relationship for the sale of its retail production fixed rate
mortgage loans which substantially eliminates the need to hedge the interest
rate risk associated with the production and sale of such loans.
For the financial contracts listed below, BancGroup's exposure to interest
rate risk is mitigated by the expected inverse relationship these instruments
have with mortgage servicing rights.
The following summarizes the notional amounts of BancGroup's derivative
contracts:
INTEREST
CALL PUT CMT RATE PO
OPTIONS OPTIONS FUTURES FLOORS STRIPS STRIPS CMS FLOORS
--------- --------- --------- ----------- --------- ------- ----------
(IN THOUSANDS)
Balance, January 1, 1998.... $ -- $ -- $ -- $ -- $ -- $ -- $ --
Additions................... 369,000 426,000 648,000 -- -- -- --
Dispositions/Expirations.... (170,500) (123,000) (305,000) -- -- -- --
--------- --------- --------- ----------- --------- ------- --------
Balance, December 31,
1998...................... 198,500 303,000 343,000 -- -- -- --
Additions................... -- -- -- 1,730,000 176,000 75,000 293,000
Dispositions/Expirations.... (198,500) (303,000) (343,000) (1,275,000) (176,000) (3,697) --
--------- --------- --------- ----------- --------- ------- --------
Balance, December 31,
1999...................... $ -- $ -- $ -- $ 455,000 $ -- $71,303 $293,000
========= ========= ========= =========== ========= ======= ========
These instruments are used by BancGroup to protect the value of its
investment in mortgage servicing rights from the effects of increased prepayment
activity that generally results from declining interest rates.
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Generally, as interest rates increase, the value of the mortgage servicing
rights increases while the value of the hedge instruments declines.
There can be no assurance that, in periods of increasing interest rates,
the increase in value of hedged mortgage servicing rights will offset the loss
in value of the Servicing Hedges; or, in periods of declining interest rates,
that the Company's Servicing Hedges will generate gains, or if gains are
generated, that they will fully off-set impairment of the hedged mortgage
servicing rights.
7. MORTGAGE SERVICING RIGHTS
An analysis of mortgage servicing rights and the related valuation reserve is as
follows:
1999 1998
-------- --------
(IN THOUSANDS)
Mortgage Servicing Rights
Balance, January 1.......................................... $221,798 $143,401
Additions................................................... 90,078 99,999
Sales....................................................... (65,182) --
Scheduled amortization...................................... (34,478) (25,941)
Hedge losses applied, net................................... 53,672 4,339
-------- --------
Balance, December 31........................................ $265,888 $221,798
======== ========
Valuation Reserve
Balance, January 1.......................................... $ 38,329 $ 1,361
Additions/(Reductions), net................................. (10,846) 36,968
-------- --------
Balance, December 31........................................ 27,483 38,329
-------- --------
Mortgage Servicing Rights, Net.............................. $238,405 $183,469
======== ========
The estimated fair value of MSR closely approximated the amounts reflected
in the financial statements. As of December 31, 1999, 1998, and 1997,
BancGroup's subsidiary, Colonial Bank services or subservices approximately
$15.2 billion, $14.7 billion, and $11.4 billion, respectively of loans for third
parties. Included in the loans serviced as of December 31, 1999 and 1998, were
loans being serviced under subservicing agreements with total principal balances
of $2.3 billion and $316 million, respectively. These loans are serviced under a
variety of servicing contracts. In general, these contracts include guidelines
and procedures for servicing the loans, remittance and reporting requirements,
among other provisions.
During the year ended December 31, 1999, the Company sold MSR relating to
loans with $3.4 billion of principal balance from its loan servicing portfolio.
These non-recourse sales agreements provide for the Company to subservice
(generally for up to 90 days) the loans for a fee designed to cover the
Company's cost of servicing and provide repayment protection to the purchaser
for a short period after the sale.
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8. PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
1999 1998
--------- ---------
(IN THOUSANDS)
Land........................................................ $ 40,643 $ 38,743
Bank premises............................................... 115,683 113,726
Equipment................................................... 104,357 109,852
Leasehold improvements...................................... 22,064 21,708
Construction in progress.................................... 4,646 15,112
Automobiles and airplane.................................... 18,310 804
--------- ---------
Total............................................. 305,703 299,945
Less accumulated depreciation and amortization.............. (114,757) (118,328)
--------- ---------
Premises and equipment, net................................. $ 190,946 $ 181,617
========= =========
9. SHORT-TERM BORROWINGS
Short-term borrowings are summarized as follows:
1999 1998 1997
---------- ---------- --------
(IN THOUSANDS)
FHLB borrowings............................................. $ 490,000 $ 769,987 $420,000
Federal funds purchased and securities sold under repurchase
agreements................................................ 452,337 480,008 284,740
Reverse Repurchase Agreements............................... 150,571 184,834 12,695
Current maturities of FHLB advances......................... 100,521 50,840 1,345
Term notes.................................................. -- 25,000 10,000
Other short-term borrowings................................. -- 299 2,579
---------- ---------- --------
Total............................................. $1,193,429 $1,510,968 $731,359
========== ========== ========
At December 31, 1999 and 1998, BancGroup had reverse repurchase agreements
outstanding in the amount of $151 million and $185 million, respectively. This
debt corresponds to securities purchased under resale agreements with other
financial institutions (Note 10).
BancGroup is a member of the FHLB. At December 31, 1999 and 1998, BancGroup
had borrowings of $1.2 billion and $1.3 billion outstanding of which $573
million and $528 million, respectively, (Note 10) are included in long-term debt
with the remaining portion included in short-term borrowings, leaving credit
availability at December 31, 1999 of $306 million based on current collateral.
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 up to
$500 million of availability from FHLB, of which none was outstanding at
December 31, 1999. This warehouse line is collateralized by mortgage loans held
for sale.
During 1999, BancGroup entered into a revolving credit facility with an
unaffiliated financial institution totaling $25 million of which none was
outstanding at December 31, 1999. This facility bears interest at 0.85% above
LIBOR and expires in July 2000. BancGroup had an outstanding term note with an
unaffiliated financial institution in the amount of $25 million at December 31,
1998. This term note was paid in full upon maturity on June 30, 1999, and bore
interest at a rate of 1% above LIBOR.
At December 31, 1997, BancGroup had a line of credit with an unaffiliated
financial institution totaling $35 million of which $10 million was outstanding
and is included in short-term borrowings above. The line of credit bore interest
at a rate of 1.5% above LIBOR. All of the capital stock of BancGroup's
subsidiary, Colonial Bank, was pledged as collateral. This line of credit
expired in 1998 and all amounts outstanding were paid in full.
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Additional details regarding short-term borrowings (excluding current
maturities of long-term debt) are shown below:
MAXIMUM AVERAGE
OUTSTANDING AVERAGE INTEREST
AT ANY AVERAGE INTEREST RATE AT
MONTH END BALANCE RATE YEAR END
----------- ---------- -------- --------
(IN THOUSANDS)
1999
FHLB borrowings............................... $1,374,892 $ 530,685 5.27% 5.87%
Other short-term borrowings................... 823,534 775,375 5.00 5.30
---------- ---------- ---- ----
$2,198,426 $1,306,060 5.11% 5.54%
========== ========== ==== ====
1998
FHLB borrowings............................... $ 901,149 $ 554,629 5.62% 5.29%
Other short-term borrowings................... 598,813 449,743 5.26 4.96
---------- ---------- ---- ----
$1,499,962 $1,004,372 5.46% 5.15%
========== ========== ==== ====
1997
FHLB borrowings............................... $ 652,000 $ 539,587 5.74% 5.92%
Other short-term borrowings................... 311,360 188,203 5.14 5.49
---------- ---------- ---- ----
$ 963,360 $ 727,790 5.61% 5.74%
========== ========== ==== ====
10. LONG-TERM DEBT
Long-term debt is summarized as follows:
1999 1998
-------- --------
(IN THOUSANDS)
7 1/2% Convertible Subordinated Debentures.................. $ 3,178 $ 3,672
7% Convertible Subordinated Debentures...................... 1,145 1,145
Variable Rate Subordinated Debentures....................... 7,725 7,725
Subordinated Notes.......................................... 100,000 --
Trust Preferred Securities.................................. 70,000 70,000
FHLB Advances............................................... 572,549 528,163
Reverse Repurchase Agreements............................... 132,325 132,356
REMIC Bonds................................................. 2,649 3,386
-------- --------
Total............................................. $889,571 $746,447
======== ========
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 $7.00 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 454,000 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 $7.58 principal amount of the 1994 Debentures, subject
to adjustment upon occurrence of certain events, for each share of stock
received. In the event all of the remaining 1994 Debentures are converted into
shares of BancGroup Common Stock in accordance with the 1994 Indenture,
approximately 151,000 shares of such Common Stock would be issued.
In connection with the ASB Bancshares, Inc. acquisition, on February 5,
1998, BancGroup issued $7,725,000 of variable rate subordinated debentures due
February 5, 2008 ("1998 Debentures"). These
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variable rate subordinated debentures bear interest equal to the New York Prime
Rate minus 1% (but in no event less than 7% per annum).
On March 15, 1999, BancGroup issued $100 million of subordinated notes, due
March 15, 2009. The notes bears interest at 8.00% and are not subject to
redemption prior to maturity.
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 subordinated debentures, notes and Trust Preferred Securities described
above are subordinate to substantially all remaining liabilities of BancGroup.
BancGroup had long-term FHLB Advances (Note 9) outstanding of $572,549,000
and $528,163,000 at December 31, 1999 and 1998, respectively. These advances
bear interest rates of 5.41% to 6.83% and mature from 2001 to 2013.
BancGroup has received funds under reverse repurchase agreements with
Morgan Stanley, Salomon Brothers and First Boston. At December 31, 1999,
BancGroup had long-term reverse repurchase agreements outstanding of $132
million. These agreements, which are collateralized by mortgage-backed
securities, bear interest rates of 5.66% to 6.03% and mature from 2001 to 2003.
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, 1999, only the Class A-4 bonds due
September 1, 2017 remain outstanding with an outstanding balance of $2,649,000
and are collateralized by FNMA mortgage-backed securities with a carrying value
of $2,599,000. The collections on these securities are used to pay interest and
principal on the bonds.
At December 31, 1999, long-term debt, including the current portion, is
scheduled to mature as follows:
CONSOLIDATED
PARENT ONLY BANCGROUP
----------- ------------
(IN THOUSANDS)
2000........................................................ $100,521
2001........................................................ 230,099
2002........................................................ 14,363
2003........................................................ 163,166
2004........................................................ $ 1,145 151,357
Thereafter.................................................. 80,903 330,586
------- --------
Total............................................. $82,048 $990,092
======= ========
11. CAPITAL STOCK
On July 15, 1998, 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 August 14, 1998. The stated par value was not changed from $2.50
per share. 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.
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.
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12. 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 $79 million
of retained earnings plus certain 2000 earnings would be available for
distribution to BancGroup, from its subsidiaries, as dividends in 2000 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, 1999, these deposits were not material to BancGroup's funding
requirements.
BancGroup and Colonial 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 Colonial 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
Colonial 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 Colonial 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, 1999 and 1998, that
BancGroup and Colonial Bank meet all capital adequacy requirements to which they
are subject.
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As of December 31, 1999, the most recent notification from the Federal
Deposit Insurance Corporation categorized Colonial Bank as well capitalized
under the regulatory framework for prompt corrective action. To be categorized
as well capitalized BancGroup and Colonial 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 Colonial Bank are also presented in the following table:
TO BE WELL
FOR CAPITALIZED
CAPITAL UNDER PROMPT
ADEQUACY CORRECTIVE
ACTUAL PURPOSES ACTION PROVISIONS
----------------- -------- ------------------
AMOUNT RATIO* AMOUNT RATIO AMOUNT RATIO
-------- ------ -------- ----- --------- ------
(IN THOUSANDS)
AS OF DECEMBER 31, 1999
Total Capital (to risk weighted assets)
Consolidated......................... $907,535 11.31% $641,801 >=8.0% $802,252 >=10.0%
Colonial Bank........................ 891,302 11.12 641,467 >=8.0 801,834 >=10.0
Tier I Capital (to risk weighted assets)
Consolidated......................... 699,094 8.71 320,901 >=4.0 481,351 >=6.0
Colonial Bank........................ 695,309 8.67 320,733 >=4.0 481,100 >=6.0
Tier I Capital (to average assets)
Consolidated......................... 699,094 6.58 425,127 >=4.0 531,408 >=5.0
Colonial Bank........................ 695,309 6.54 424,961 >=4.0 531,201 >=5.0
As of December 31, 1998
Total Capital (to risk weighted assets)
Consolidated......................... $703,549 9.85% $571,279 >=8.0% $714,099 >=10.0%
Colonial Bank........................ 727,764 10.20 570,911 >=8.0 713,638 >=10.0
Tier I Capital (to risk weighted assets)
Consolidated......................... 607,110 8.50 285,639 >=4.0 428,459 >=6.0
Colonial Bank........................ 643,867 9.02 285,455 >=4.0 428,183 >=6.0
Tier I Capital (to average assets)
Consolidated......................... 607,110 6.08 399,717 >=4.0 499,646 >=5.0
Colonial Bank........................ 643,867 6.44 399,670 >=4.0 499,625 >=5.0
- ---------------
* These ratios are subject to regulatory review
13. 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, 1999 were as follows:
(IN THOUSANDS)
2000........................................................ $ 17,455
2001........................................................ 13,618
2002........................................................ 10,757
2003........................................................ 9,068
2004........................................................ 8,154
Thereafter.................................................. 47,186
--------
Total............................................. $106,238
========
Rent expense for all leases amounted to $17,108,000 in 1999, $18,635,000 in
1998 and $12,649,000 in 1997, respectively.
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14. EMPLOYEE BENEFIT PLANS
BancGroup and subsidiaries are participants in a pension plan that 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.
Employee pension benefit plan status at December 31:
1999 1998
CHANGE IN BENEFIT OBLIGATION: ------- -------
Benefit obligation at January 1............................. $21,541 $17,348
Service cost................................................ 2,951 2,095
Interest cost............................................... 1,712 1,370
Actuarial gain (loss)....................................... (342) 1,287
Benefits paid............................................... (1,093) (559)
------- -------
Benefit obligation at December 31........................... 24,769 21,541
------- -------
CHANGE IN PLAN ASSETS:
Fair value of plan assets at January 1...................... 20,655 18,486
Actual return on plan assets................................ 3,365 1,150
Employer contributions...................................... -- 1,578
Benefits paid............................................... (1,093) (559)
------- -------
Fair value of plan assets at December 31.................... 22,927 20,655
------- -------
Funded status at December 31................................ (1,842) (886)
Unrecognized net actuarial gain............................. (2,603) (1,774)
Unrecognized prior service cost............................. 19 19
------- -------
Accrued benefit cost at December 31......................... $(4,426) $(2,641)
======= =======
1999 1998 1997
WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31: ------- ------- -------
Discount Rate............................................... 7.25% 6.75% 7.25%
Expected return on plan assets.............................. 9.00 9.00 9.00
Rate of compensation increase............................... 4.50 4.00 4.25
1999 1998 1997
COMPONENTS OF NET PERIODIC BENEFIT COST FOR THE YEAR ENDED DECEMBER 31: ------- ------- -------
Service cost..................................................... $ 2,951 $ 2,095 $ 1,407
Interest cost.................................................... 1,712 1,370 1,199
Expected return on plan assets................................... (1,957) (1,691) (1,246)
Actuarial gain................................................... (1) (163)
------- ------- -------
Net annual benefit cost.......................................... $ 2,705 $ 1,611 $ 1,360
======= ======= =======
At both December 31, 1999 and 1998, the pension plan assets included
investments of 164,520 shares of BancGroup Common Stock representing 7% and 10%
of pension plan assets, respectively. At December 31, 1999, BancGroup Common
Stock included in pension plan assets had a cost and market value of
approximately $616,429 and $1,562,940, respectively. Pension plan assets are
distributed with approximately 5% in U.S. Government and agency issues, 19% in
Corporate bonds, 71% in equity securities (including BancGroup Common Stock) and
5% 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
63
65
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 approximately $2,200,000, $1,794,000 and $1,561,000
for 1999, 1998 and 1997, respectively.
15. 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 4,200,000 shares of Common Stock is
reserved for issuance under the 1992 Plan. At December 31, 1999 and 1998,
approximately 937,688 and 1,814,500, 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 3,200,000 shares
of Common Stock is reserved for issuance under the 1992 Nonqualified Plan. At
December 31, 1999 and 1998, approximately 2,560,000 and 2,712,000 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 1999 and 1998 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, 1999, 1998 and 1997.
QUALIFIED PLANS(1) NONQUALIFIED PLANS(1)
---------------------------- ----------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
--------- ---------------- --------- ----------------
Outstanding at December 31, 1996........... 1,312,596 $ 5.966 2,745,917 $ 3.113
Assumed in business combinations
(at $6.20 -- $13.78 per share)........... 127,652 3.660 505,948 4.800
Granted (at $9.578 -- $13.86 per share).... 226,200 11.477 117,000 10.609
Exercised (at $1.54 -- $8.658 per share)... (617,362) 3.548 (722,416) 3.093
Cancelled (at $8.578 -- $13.60 per
share)................................... (85,788) 9.596 (3,228) 3.690
--------- ------- --------- -------
Outstanding at December 31, 1997........... 963,298 8.181 2,643,221 3.773
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66
QUALIFIED PLANS(1) NONQUALIFIED PLANS(1)
---------------------------- ----------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
--------- ---------------- --------- ----------------
Assumed in business combinations
(at $2.378 -- $5.9758 per share)......... 578,339 $ 4.234 226,700 $ 4.419
Granted (at $7.585 -- $18.20315 per
share)................................... 1,695,000 13.821 132,000 12.366
Exercised (at $1.54 -- $12.125 per
share)................................... (567,459) 4.913 (946,242) 3.426
Cancelled (at $8.578 -- $17.1875 per
share)................................... (105,280) 13.778 (30,000) 9.995
--------- ------- --------- -------
Outstanding at December 31, 1998........... 2,563,898 11.513 2,025,679 4.475
Granted (at $10.50 -- $14.5625 per
share)................................... 1,209,500 12.385 200,000 11.016
Exercised (at $1.54 -- $12.125 per
share)................................... (458,295) 4.979 (430,418) 4.076
Cancelled (at $2.378 -- $18.2032 per
share)................................... (163,811) 12.863 (82,319) 8.184
--------- ------- --------- -------
Outstanding at December 31, 1999........... 3,151,292 $12.495 1,712,942 $ 5.283
========= ======= ========= =======
- ---------------
(1) This table includes those plans assumed pursuant to various business
combinations according to the respective exchange ratios.
At December 31, 1999, the total shares outstanding and exercisable under
these option plans were as follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------- ------------------------------------
WEIGHTED
AVERAGE WEIGHTED NUMBER
NUMBER REMAINING AVERAGE AGGREGATE EXERCISABLE AVERAGE AGGREGATE
RANGE OF OUTSTANDING LIFE EXERCISE OPTION AT EXERCISE OPTION
EXERCISE PRICES AT 12/31/99 (IN YEARS) PRICE PRICE 12/31/99 PRICE PRICE
- --------------- ----------- ---------- -------- ----------- ----------- -------- -----------
$1.54 -- $1.94............. 562,160 1.40 $ 1.6845 $ 921,912 475,004 $ 1.5849 $ 752,830
$2.87 -- $4.56............. 637,700 1.62 4.4523 2,720,803 601,648 4.3503 2,617,334
$4.625 -- $7.358........... 262,168 5.46 6.4585 1,693,221 262,168 6.4585 1,693,221
$8.578 -- $10.50........... 1,090,106 8.76 10.0530 10,958,862 264,168 9.1975 2,429,675
$11.0313 -- $12.25......... 977,600 8.98 11.5977 11,337,911 199,420 11.6148 2,316,218
$12.2813 -- $18.1959....... 1,334,500 8.74 15.5797 20,791,167 178,600 16.0709 2,870,257
--------- ---- -------- ----------- --------- -------- -----------
Total............. 4,864,234 6.84 $ 9.9551 $48,423,876 1,981,008 $ 6.4005 $12,679,535
========= ==== ======== =========== ========= ======== ===========
As permitted by Financial Accounting Standards No. 123, "Accounting for
Stock Based Compensation" (SFAS 23), 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 market price at grant date of the shares as the shares become
exercisable. 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
-------- --------
1999
Net income.................................................. $119,597 $117,752
Earnings per share (basic).................................. 1.07 1.05
1998
Net income.................................................. $ 55,196 $ 54,426
Earnings per share (basic).................................. 0.50 0.49
1997
Net income.................................................. $ 90,362 $ 89,836
Earnings per share (basic).................................. 0.86 0.86
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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 1999, 1998 and 1997, respectively: dividend yield
of 3.13%, 2.50% and 3.11%; expected volatility of 32%, 25% and 23%, for 1999,
1998 and 1997; risk-free interest rates of 5.43%, 5.06% and 6.46% for 1999, 1998
and 1997, respectively; and expected lives of ten years. The weighted average
fair values of options granted during 1999, 1998 and 1997 were $3.89, $3.66 and
$4.81, 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 1999, 1998 and 1997, respectively, 60,435, 79,092 and 62,164 shares of
Common Stock were issued under the Directors Plan, representing approximately
$724,000, $819,000 and $503,000 in directors' fees for 1999, 1998 and 1997,
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 $745,000, $1,123,000 and $423,000 in
compensation expense was charged to operations under this plan for the years
ended December 31, 1999, 1998 and 1997, respectively. During 1999, 1998 and 1997
the Company awarded 20,100, 123,960 and 58,204 shares, respectively, under the
Stock Bonus and Retention Plan having weighted average market value at grant
date of $13.60, $17.19 and $10.41, respectively. An aggregate of 3,000,000
shares has been reserved for issuance under this Plan. There were 338,744 shares
outstanding of which 188,580 shares were fully vested at December 31, 1999.
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 600,000 shares authorized for issuance under this Plan from
authorized but unissued shares. An additional 400,000 may be acquired from time
to time on the open market for issuance under the Plan. There were 183,016
shares issued and outstanding under this Plan at December 31, 1999.
16. 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, 1999 will
have a materially adverse effect on BancGroup's financial statements.
17. RELATED PARTIES
BancGroup and Colonial Bank lease premises, including their principal
corporate offices, from companies partly owned by a principal shareholder of
BancGroup. Amounts paid under these leases and agreements approximated
$2,925,000, $3,717,000 and $3,475,000 in 1999, 1998 and 1997, respectively.
During 1999, 1998 and 1997, BancGroup and its subsidiaries paid or accrued
fees of approximately $1,196,000, $1,198,000 and $1,659,000, respectively, for
legal services required of law firms in which a partner of the firm serves on
the Board of Directors.
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18. ACQUISITION EXPENSE & RESTRUCTURING CHARGES
In the first quarter of 1998, BancGroup reorganized executive management of
its Florida regions. The reorganization resulted in structuring charge of $2.5
million. During the fourth quarter of 1998, the Company developed a plan to:
- Close certain unprofitable branches
- Sell five super-market branches
- Relocate and upgrade two other branches
- Move the headquarters of the South Florida Region to downtown Miami and
to consolidate the trust department into the South Florida headquarters
to better serve its customer base.
As a result of these actions BancGroup recognized a fourth quarter
restructuring charge of $6.3 million, which is net of $902,000 in reversals of
unused reserves.
The following is a summary of restructuring charges and activity for the
years ended December 31, 1999 and 1998:
LEASE ACCRUED
REDUCTION OF TERMINATION SEVERANCE
ASSET VALUES LIABILITIES & OTHER TOTAL
------------ ----------- --------- -------
(IN THOUSANDS)
January 1, 1998.............................. $ -- $ -- $ -- $ --
Additions (expense).......................... 4,395 3,240 2,052 9,687
Reversal of unused reserves.................. -- (362) (540) (902)
------- ------- ------ -------
Net expense.................................. 4,395 2,878 1,512 8,785
Write-off of assets.......................... (4,395) -- -- (4,395)
Reductions (payments)........................ -- -- (914) (914)
------- ------- ------ -------
Balance at December 31, 1998................. -- 2,878 598 3,476
------- ------- ------ -------
Reductions (payments)........................ -- (1,327) (598) (1,925)
------- ------- ------ -------
Balance at December 31, 1999................. $ -- $ 1,551 $ -- $ 1,551
======= ======= ====== =======
Additionally, the Company has recognized acquisition related expenses
totaling $1,307,000, $12,750,000 and $6,463,000 for each of the years ended
December 31, 1999, 1998 and 1997, respectively. These expenses relate primarily
to transaction costs such as legal and accounting fees and incremental charges
related to the integration of acquired banks, such as system conversion
(including contract buy-outs and write off of equipment) and employee severance.
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19. OTHER EXPENSE
The following amounts were included in Other Expense:
1999 1998 1997
------- ------- -------
(IN THOUSANDS)
FDIC and state assessments.................................. $ 1,629 $ 2,221 $ 1,822
Advertising and public relations............................ 7,014 7,835 7,574
Stationery, printing, and supplies.......................... 6,245 6,551 5,525
Telephone................................................... 7,793 7,276 5,510
Legal....................................................... 5,001 4,663 2,949
Postage and courier......................................... 7,743 7,185 6,001
Insurance................................................... 1,699 1,644 2,095
Professional services....................................... 12,423 13,739 9,945
Travel...................................................... 4,210 4,695 4,035
Other....................................................... 26,297 31,092 19,840
------- ------- -------
Total............................................. $80,054 $86,901 $65,296
======= ======= =======
20. INCOME TAXES
The components of income taxes were as follows:
1999 1998 1997
------- -------- -------
(IN THOUSANDS)
Currently payable
Federal................................................... $66,285 $ 44,880 $46,395
State..................................................... 2,248 3,985 4,407
Deferred.................................................... 1,794 (17,459) 612
------- -------- -------
Total............................................. $70,327 $ 31,406 $51,414
======= ======== =======
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:
1999 1998 1997
------- ------- -------
(IN THOUSANDS)
Tax at statutory rate on pre-tax income..................... $66,473 $30,311 $49,622
Add:
State income taxes, net of federal tax benefit............ 1,641 1,259 3,067
Amortization of net purchase accounting adjustments....... 1,705 1,681 1,026
Other..................................................... 3,080 367 (142)
------- ------- -------
Total............................................. 72,899 33,618 53,573
------- ------- -------
Deduct:
Nontaxable interest income................................ 1,991 1,622 2,116
Other..................................................... 581 590 43
------- ------- -------
Total............................................. 2,572 2,212 2,159
------- ------- -------
Total income taxes................................ $70,327 $31,406 $51,414
======= ======= =======
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The components of BancGroup's net deferred tax asset as of December 31,
1999 and 1998, were as follows:
1999 1998
------- -------
(IN THOUSANDS)
Deferred tax assets:
Allowance for possible loan losses........................ $35,613 $31,670
Pension accrual in excess of contributions................ 2,227 497
Accumulated amortization and valuation reserve for
mortgage servicing rights.............................. 1,881 7,642
Other real estate owned write-downs....................... 519 544
Other liabilities and reserves............................ 4,496 7,709
Accelerated tax depreciation.............................. 1,520 655
Unrealized loss on securities available for sale.......... 16,045 -
Other..................................................... 707 5,679
------- -------
Total deferred tax asset.......................... $63,008 $54,396
======= =======
Deferred tax liabilities:
Cumulative accretion/discount on bonds.................... $ 618 $ 1,125
Loan loss reserve recapture............................... 2,772 3,498
Unrealized gain on securities available for sale.......... - 1,443
Other..................................................... 2,219 2,266
------- -------
Total deferred tax liability...................... 5,609 8,332
======= =======
Net deferred tax asset............................ $57,399 $28,858
======= =======
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.
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21. EARNINGS PER SHARE
The following table reflects a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation:
PER SHARE
INCOME SHARES AMOUNT
----------- ----------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1999
Basic EPS
Net Income.................................. $119,597 111,678 $1.07
Effect of dilutive securities
Options.................................. 907
Convertible debentures................... 219 667
-------- -------- -----
Diluted EPS................................... $119,816 113,252 $1.06
======== ======== =====
1998
Basic EPS
Net Income.................................. $ 55,196 110,062 $0.50
Effect of dilutive securities
Options.................................. 1,640
Convertible debentures................... 238 729
-------- -------- -----
Diluted EPS................................... $ 55,434 112,431 $0.49
======== ======== =====
1997
Basic EPS
Net Income.................................. $ 90,362 105,010 $0.86
Effect of dilutive securities
Options..................................... 2,422
Convertible debentures...................... 295 964
-------- -------- -----
Diluted EPS................................... $ 90,657 108,396 $0.84
======== ======== =====
22. 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.
DERIVATIVES -- Fair value is defined as the amount that the company would
receive or pay to terminate the contracts at the reporting date. Market or
dealer quotes were used to value the instruments.
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, 1999 and
1998. The fair value of fixed-maturity certificates of deposit is estimated
using the rates currently offered for deposits of similar remaining maturities.
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72
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, 1999 and 1998.
The estimated fair values of BancGroup's financial instruments at December
31, 1999 and 1998 are as follows:
1999 1998
------------------------ -----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
----------- ---------- ---------- ----------
(IN THOUSANDS)
Financial assets:
Cash and short-term investments.............. $ 368,915 $ 368,915 $ 494,966 $ 494,966
Securities available for sale................ 1,489,991 1,489,991 1,414,218 1,414,218
Investment securities........................ 61,682 61,922 170,954 173,542
Mortgage loans held for sale................. 33,150 33,150 692,042 692,099
Loans........................................ 8,228,149 7,110,295
Less: allowances for loan losses............. (95,993) (83,562)
----------- ---------- ---------- ----------
Loans, net................................... 8,132,156 7,919,286 7,026,733 7,150,559
----------- ---------- ---------- ----------
Total................................ $10,085,894 $9,873,264 $9,798,913 $9,925,384
=========== ========== ========== ==========
Financial liabilities:
Deposits..................................... $ 7,967,978 $7,956,247 $7,446,153 $7,341,289
Short-term borrowings........................ 1,193,429 1,179,520 1,510,968 1,510,131
Long-term debt............................... 889,571 855,449 746,447 739,840
----------- ---------- ---------- ----------
Total................................ $10,050,978 $9,994,216 $9,703,568 $9,591,260
=========== ========== ========== ==========
Derivatives:
CMT Floors................................... $ 3,114 $ 3,114
PO Strips.................................... 167 167
CMS Floors................................... 3,046 3,046
Options on interest rate futures............. $ (4,234) $ (4,234)
Interest rate futures........................ (2,730) (2,730)
----------- ---------- ---------- ----------
$ 6,327 $ 6,327 $ (6,964) $ (6,964)
=========== ========== ========== ==========
23. SEGMENT INFORMATION
Through its wholly owned subsidiary, Colonial Bank, BancGroup segments its
operations into two distinct lines of business: Commercial Banking and Mortgage
Banking.
Colonial Bank provides general banking services in 238 branches throughout
6 states.
Operating results and asset levels of the two segments reflect those which
are specifically identifiable or which are based on an internal allocation
method. The two segments are designed around BancGroup's organizational and
management structure, and while the assignments and allocations have been
consistently applied for all periods presented, the results are not necessarily
comparable to similar information published by other financial institutions.
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73
The following table reflects the approximate amounts of consolidated
revenue, expense, and assets for the years ended December 31, for each segment:
SEGMENT DATA
COMMERCIAL MORTGAGE CORPORATE/ CONSOLIDATED
BANKING BANKING OTHER* BANCGROUP
----------- -------- ---------- ------------
(DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER 31, 1999
Interest Income.................................. $ 750,625 $ 25,309 $ -- $ 775,934
Interest expense................................. 372,690 18,035 7,265 397,990
Provision for possible loan losses............... 28,707 -- -- 28,707
Noninterest income............................... 74,870 68,066 (697) 142,239
Amortization and depreciation.................... 27,676 35,604 (408) 62,872
Noninterest expense.............................. 206,203 32,409 68 238,680
----------- -------- -------- -----------
Pretax income.................................... 190,219 7,327 (7,622) 189,924
Income taxes..................................... 71,272 2,735 (3,680) 70,327
----------- -------- -------- -----------
Net income (loss)................................ $ 118,947 $ 4,592 $ (3,942) $ 119,597
=========== ======== ======== ===========
Identifiable assets.............................. $10,500,209 $341,416 $ 12,474 $10,854,099
Capital expenditures............................. $ 40,037 $ 451 $ 34 $ 40,522
YEAR ENDED DECEMBER 31, 1998
Interest Income.................................. $ 664,664 $ 28,897 $ (19) $ 693,542
Interest expense................................. 327,694 15,997 6,750 350,441
Provision for possible loan losses............... 26,345 -- -- 26,345
Noninterest income............................... 60,055 66,306 (1,103) 125,258
Amortization and depreciation.................... 25,227 64,025 (283) 88,969
Noninterest expense.............................. 231,979 32,013 2,451 266,443
----------- -------- -------- -----------
Pretax income.................................... 113,474 (16,832) (10,040) 86,602
Income taxes..................................... 40,760 (6,384) (2,970) 31,406
----------- -------- -------- -----------
Net income (loss)................................ $ 72,714 $(10,448) $ (7,070) $ 55,196
=========== ======== ======== ===========
Identifiable assets.............................. $ 9,507,563 $936,562 $ 12,160 $10,456,285
Capital expenditures............................. $ 45,134 $ 1,636 $ 95 $ 46,865
YEAR ENDED DECEMBER 31, 1997
Interest Income.................................. $ 571,784 $ 11,836 $ 17 $ 583,637
Interest expense................................. 274,093 4,637 6,041 284,771
Provision for possible loan losses............... 16,321 -- -- 16,321
Noninterest income............................... 50,200 51,319 (574) 100,945
Amortization and depreciation.................... 18,768 17,972 9 36,749
Noninterest expense.............................. 178,497 22,710 3,758 204,965
----------- -------- -------- -----------
Pretax income.................................... 134,305 17,836 (10,365) 141,776
Income taxes..................................... 47,605 6,698 (2,889) 51,414
----------- -------- -------- -----------
Net income (loss)................................ $ 86,700 $ 11,138 $ (7,476) $ 90,362
=========== ======== ======== ===========
Identifiable assets.............................. $ 7,655,393 $393,586 $ 12,587 $ 8,061,566
Capital expenditures............................. $ 44,313 $ 1,506 $ 462 $ 46,281
- ---------------
* Includes eliminations of certain intercompany transactions.
72
74
24. CONDENSED FINANCIAL INFORMATION OF THE COLONIAL BANCGROUP, INC. (PARENT
COMPANY ONLY)
STATEMENT OF CONDITION
DECEMBER 31,
-------------------
1999 1998
-------- --------
(IN THOUSANDS)
ASSETS:
Cash*....................................................... $ 18,317 $ 1,704
Investment in subsidiaries*................................. 757,658 742,047
Intangible assets........................................... 4,399 4,831
Other assets................................................ 4,466 4,834
-------- --------
Total assets...................................... $784,840 $753,416
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Short-term borrowings....................................... $ -- $ 25,000
Subordinated debt........................................... 82,048 82,542
Other liabilities........................................... 7,613 6,067
Shareholders' equity........................................ 695,179 639,807
-------- --------
Total liabilities and shareholders' equity........ $784,840 $753,416
======== ========
- ---------------
* Eliminated in consolidation.
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31,
----------------------------
1999 1998 1997
-------- ------- -------
(IN THOUSANDS)
INCOME:
Cash dividends from subsidiaries*........................... $ 78,996 $49,532 $43,827
Interest and dividends on short-term investments*........... 677 480 913
Other income................................................ 2,490 2,418 2,505
-------- ------- -------
Total income...................................... 82,163 52,430 47,245
-------- ------- -------
EXPENSES:
Interest.................................................... 7,942 7,249 6,937
Salaries and employee benefits.............................. 1,263 1,492 1,703
Occupancy expense........................................... 414 311 346
Furniture and equipment expense............................. 137 108 95
Amortization of intangible assets........................... 432 432 447
Other expenses.............................................. 1,730 4,286 4,904
-------- ------- -------
Total expenses.................................... 11,918 13,878 14,432
-------- ------- -------
Income before income taxes and equity in undistributed net
income of subsidiaries.................................... 70,245 38,552 32,813
Income tax benefit.......................................... 3,278 3,875 2,336
-------- ------- -------
Income before equity in undistributed net income of
subsidiaries.............................................. 73,523 42,427 35,149
Equity in undistributed net income of subsidiaries*......... 46,074 12,769 55,213
-------- ------- -------
Net income........................................ $119,597 $55,196 $90,362
======== ======= =======
- ---------------
* Eliminated in consolidation.
73
75
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES........................ $ 77,526 $ 46,927 $ 37,797
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures........................................ (34) (95) (462)
Proceeds from maturities of securities...................... -- -- 506
Proceeds from sale of premises and equipment................ -- 2,389 --
Net investment in subsidiaries*............................. -- (25,000) (56,865)
-------- -------- --------
Net cash (used in) investing activities..................... (34) (22,706) (56,821)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in short-term borrowings................ (25,000) 11,860 8,500
Proceeds from issuance of subordinated debt................. -- -- 70,000
Repayments of long-term debt................................ -- -- (15,149)
Proceeds from issuance of common stock...................... 6,437 6,830 10,573
Purchase of treasury stock.................................. -- (17,100) (16,013)
Dividends paid.............................................. (42,316) (36,377) (28,127)
-------- -------- --------
Net cash (used in) provided by financing activities......... (60,879) (34,787) 29,784
-------- -------- --------
Net increase (decrease) in cash and cash equivalents........ 16,613 (10,566) 10,760
Cash and cash equivalents at beginning of year.............. 1,704 12,270 1,510
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR*................... $ 18,317 $ 1,704 $ 12,270
======== ======== ========
Supplemental Disclosure of cash flow information:
Cash paid (received) during the year for:
Interest.................................................. $ 7,690 $ 7,350 $ 4,037
Income taxes.............................................. (4,023) (3,565) (3,140)
- ---------------
* Eliminated in consolidation
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None
74
76
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 17, 2000, under the
captions "Election of Directors" and "Section 16 (a) Beneficial Ownership
Reporting Compliance," and is incorporated herein by reference.
EXECUTIVE OFFICERS OF THE REGISTRANT
NAME, AGE AND YEAR BECAME POSITION AND OFFICES HELD WITH PRESENT AND PRINCIPAL OCCUPATION
EXECUTIVE OFFICER BANCGROUP AND SUBSIDIARIES FOR THE LAST FIVE YEARS
------------------------- ------------------------------ --------------------------------
Robert E. Lowder............... Chairman of the Board and Chief Chairman of the Board and Chief
57, 1981 Executive Officer, BancGroup; Executive Officer, BancGroup;
Chairman of the Board and Chairman of the Board and
Chief Executive Officer, Chief Executive Officer,
Colonial Bank; Director, Colonial Bank; Chairman of the
Birmingham Region; Director, Board and President, Colonial
Huntsville Region; Director, Broadcasting until July 1,
Northwest Region; Director, 1998, Montgomery, AL; Chairman
East Central Region; Director, of the Board, Colonial
Gulf Coast Region; Director, Mortgage Company until
Montgomery Region; Director, December 31, 1999.
Central Florida Region;
Director, South Florida
Region; Director, Bay Area
Region; Director, Southwest
Florida Region; Chairman of
the Board, Atlanta Region;
Director, Nevada Region;
Director, Dallas Region;
Director, Central Georgia
Region; Chairman, Executive
Committee, BancGroup; Chairman
of the Board, Colonial
Investment Services, Inc.;
Chairman of the Board,
President and Chief Executive
Officer, Colonial BancGroup
Building Corporation
P.L. McLeod, Jr................ President, BancGroup; Chairman President, BancGroup since
51, 1997 of the Board, Montgomery Region; August 1997; President and CEO,
President, Colonial Bank; Colonial Bank Montgomery
Chairman of the Board, Region 1984 to August 1997,
Colonial Asset Management, Montgomery, AL
Inc.; Vice President and
Director, CBG, Inc.; Vice
President and Director, CBG
Investments, Inc.; Director,
Colonial Investment Services,
Inc.; Director, Colonial
BancGroup Building Corporation
75
77
NAME, AGE AND YEAR BECAME POSITION AND OFFICES HELD WITH PRESENT AND PRINCIPAL OCCUPATION
EXECUTIVE OFFICER BANCGROUP AND SUBSIDIARIES FOR THE LAST FIVE YEARS
------------------------- ------------------------------ --------------------------------
W. Flake Oakley, IV............ Executive Vice President, Chief Chief Financial Officer,
46, 1989 Financial Officer, Secretary, Secretary and Treasurer,
BancGroup; Executive Vice BancGroup, since June 1991;
President, Chief Financial Chief Financial Officer since
Officer, Cashier and October, 1990; Senior Vice
Secretary, Colonial Bank; President and Controller from
Director and Secretary, April 1989 to October 1990,
Colonial Asset Management, Montgomery, AL
Inc.; Director Colonial
Investment Services, Inc.;
Secretary, Treasurer and
Director, Colonial BancGroup
Building Corporation
Young J. Boozer, III........... Executive Vice President, Executive Vice President,
50, 1986 General Auditor, BancGroup; BancGroup, since 1986
Executive Vice President, President, Colonial Investment
General Auditor, Colonial Services, Inc. 1993 to 1997,
Bank; Executive Vice President Montgomery, AL
and Director, Colonial
BancGroup Building Corp.; Vice
President, Colonial Investment
Services, Inc.
Michelle Condon................ Executive Vice President, Executive Vice
45, 1995 Special Projects, BancGroup; President -- Special Projects,
Executive Vice President, BancGroup and Colonial Bank
Special Projects, Colonial since 1999; Retail Banking,
Bank BancGroup since 1995; Colonial
Bank -- Vice President,
Budgeting & Planning, Colonial
Bank 1990 to 1995, Montgomery,
AL
Sarah H. Moore................. Executive Vice President and Senior Vice President, Strategic
35, 1999 Treasurer, BancGroup; Planning 1996-1999; Executive
Executive Vice President and Vice President, BancGroup
Treasurer, Colonial Bank; Vice since 1999, Audit Manager
President, Colonial BancGroup 1992-1996,
Building Corporation PricewaterhouseCoopers LLP,
Montgomery, AL
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is contained in BancGroup's proxy
statement dated March 17, 2000 under the caption "Executive Compensation" and is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is contained in BancGroup's proxy
statement dated March 17, 2000, 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 17, 2000, under the captions "Compensation Committee
Interlocks and Insider Participation" and "Executive Compensation" and is
incorporated herein by reference.
76
78
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) changes
in mortgage servicing rights prepayment assumptions; (vi) general economic
conditions, either nationally or regionally, that are less favorable then
expected, resulting in, among other things, a deterioration in credit quality,
vendor representations, technological advancements, and economic factors
including liquidity availability; (vii) changes which may occur in the
regulatory environment; (viii) a significant rate of inflation (deflation); (ix)
changes in the securities markets and (x) events specifically relating to Year
2000 readiness. 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.
77
79
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The following financial statements are included herein at Item 8.
Consolidated Statements of Condition as of December 31, 1999 and 1998.
Consolidated Statements of Income for the years ended December 31, 1999,
1998, and 1997.
Consolidated Statements of Comprehensive Income for the years ended December
31, 1999, 1998 and 1997.
Consolidated Statements of Changes in Shareholders' Equity for the years
ended December 31, 1999, 1998, and 1997.
Consolidated Statements of Cash Flows for the years ended December 31, 1999,
1998, and 1997.
Notes to Consolidated Financial Statements, including Parent Company only
information.
Report of Independent Accountants.
2. Financial Statements Schedules
The financial statement schedules required to be included pursuant to this
Item are not included herein because they are not applicable or the required
information is shown in the financial statements or notes thereto which are
incorporated by reference at subsection 1 of this Item, above.
3. Exhibits
EXHIBITS AND DESCRIPTION
- ------------------------
Exhibit 3 -- Articles of Incorporation and Bylaws:
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 to Article 4 of Registrant's Restated Certificate
of Incorporation, dated May 15, 1998, filed as Exhibit 4.2
to the Registrant's Registration Statement on Form S-4 (File
No. 333-56241), effective June 22, 1998, 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 May 15, 1998, filed as Exhibit 4.2
to the Registrant's Registration Statement on Form S-4 (File
No. 333-56241), effective June 22, 1998, 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.
78
80
EXHIBITS AND DESCRIPTION
- ------------------------
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, as
amended, filed as Exhibit 10.1 to Registrant's Registration
Statement on Form S-8 (File No. 333-71841), effective
February 5, 1999, and incorporated herein by reference.
10.4 -- 1992 Nonqualified Stock Option Plan of the Registrant as
amended, filed as Exhibit 10.2 to Registrant's Registration
Statement on Form S-8 (File No. 333-71841), effective
February 5, 1999, and incorporated herein by reference.
10.5 -- SunTrust Revolving Credit Facility Commitment Letter.
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.
Exhibit 11 -- Statement Regarding Computation of Earnings Per Share are
included herein at footnote 21 to the financial statements
in Item 8.
Exhibit 12 -- Statement Regarding Computation of Ratio of Earnings to
Fixed Charges.
Exhibit 21 -- List of subsidiaries of the Registrant.
Exhibit 23 -- Consents of experts and counsel:
23.1 -- Consent of PricewaterhouseCoopers LLP.
Exhibit 24 -- Power of Attorney.
Exhibit 27 -- Financial Data Schedule.
(b) The Registrant filed no Current Reports on Form 8-K during the fourth
quarter of 1999.
79
81
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 15th day of March, 2000.
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 Executive
Robert E. Lowder Officer
/s/ W. FLAKE OAKLEY, IV Chief Financial Officer and **
- ----------------------------------------------------- Secretary (Principal Financial
W. Flake Oakley, IV Officer and Principal
Accounting Officer)
* Director **
- -----------------------------------------------------
Lewis Beville
* 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 **
- -----------------------------------------------------
Harold D. King
* Director **
- -----------------------------------------------------
John Ed Mathison
80
82
SIGNATURE TITLE DATE
--------- ----- ----
* Director **
- -----------------------------------------------------
Milton E. McGregor
* Director **
- -----------------------------------------------------
John C. H. Miller, Jr.
* Director **
- -----------------------------------------------------
Joe D. Mussafer
* Director **
- -----------------------------------------------------
William E. Powell
* 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: January 19, 2000
81
83
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 to Article 4 of Registrant's Restated Certificate
of Incorporation, dated May 15, 1998, filed as Exhibit 4.2
to the Registrant's Registration Statement on Form S-4
(File No. 333-56241), effective June 22, 1998, 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 May 15, 1998, filed as Exhibit 4.2
to the Registrant's Registration Statement on Form S-4
(File No. 333-56241), effective June 22, 1998, 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, as
amended, filed as Exhibit 10.1 to Registrant's
Registration Statement on Form S-8 (File No. 333-71841),
effective February 5, 1999, and incorporated herein by
reference.
10.4 -- 1992 Nonqualified Stock Option Plan of the Registrant, filed
as Exhibit 10.2 to Registrant's Registration Statement on
Form S-8 (File No. 333-71841), effective February 5, 1999,
and incorporated herein by reference.
10.5 -- SunTrust Revolving Credit Facility Commitment Letter.
84
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.
Exhibit 11 -- Statement Regarding Computation of Earnings Per Share are included in the Annual Report on
Form 10-K at footnote 21 to the financial statements in Item 8.
Exhibit 12 -- Statement Regarding Computation of Ratio of Earnings to Fixed Charges.
Exhibit 21 -- List of subsidiaries of the Registrant.
Exhibit 23 -- Consents of experts and counsel:
23.1 -- Consent of PricewaterhouseCoopers LLP.
Exhibit 24 -- Power of Attorney.
Exhibit 27 -- Financial Data Schedule.
(b) Registrant filed no Current Reports on Form 8-K during the fourth
quarter of 1999.
85
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, 1999
COMMISSION FILE NO. 0-07945
THE COLONIAL BANCGROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)