SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Period Ended June 30, 1995 Commission File No. 0-6032
COMPASS BANCSHARES, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 63-0593897
------------------------ ------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
15 South 20th Street
Birmingham, Alabama 35233
----------------------------------------
(Address of principal executive offices)
(205) 933-3000
-------------------------------
(Registrant's telephone number)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $2 par value
--------------------------
(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 the number of shares outstanding of each of the issuer's class of
common stock, as of the latest practicable date.
Class Outstanding at July 31, 1995
-------------------------- ----------------------------
Common Stock, $2 Par Value 38,120,932
The number of pages of this report is 21.
<PAGE>
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION Page
------------------------------ ----
Item 1 Financial Statements
Consolidated Balance Sheets as of June 30, 1995 and December
31, 1994 3
Consolidated Statements of Income for the Three and Six Months
Ended June 30, 1995 and 1994 4
Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 1995 and 1994 5
Notes to Consolidated Financial Statements 7
Item 2 Management's Discussion and Analysis of Results of Operations
and Financial Condition 9
PART II. OTHER INFORMATION
---------------------------
Item 4 Submission of Matters to a Vote of Security Holders 17
Item 6 Exhibits and Reports on Form 8-K 17
<PAGE>
<TABLE>
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In Thousands)
(Unaudited)
<CAPTION>
June 30, 1995 December 31, 1994
------------- -----------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 486,525 $ 490,494
Federal funds sold and securities purchased
under agreements to resell 60,281 46,535
Interest bearing deposits with other banks 99 99
Investment securities (market value of
$1,743,332 and $1,813,671 for 1995 and
1994, respectively) 1,718,235 1,865,218
Investment securities available for sale 849,621 711,680
Trading account securities 72,449 58,012
Loans, net of unearned income 6,170,578 5,828,308
Allowance for loan losses (107,306) (108,337)
------------ ------------
Net loans 6,063,272 5,719,971
Premises and equipment, net 212,615 206,477
Other assets 192,598 166,651
------------ ------------
Total assets $ 9,655,695 $ 9,265,137
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest bearing $ 1,276,999 $ 1,405,377
Interest bearing 5,877,234 5,783,536
------------ ------------
Total deposits 7,154,233 7,188,913
Federal funds purchased and securities
sold under agreements to repurchase 1,064,174 832,608
Other short-term borrowings 250,645 104,598
Accrued expenses and other liabilities 49,352 39,429
FHLB and other borrowings 484,899 487,916
------------ ------------
Total liabilities 9,003,303 8,653,464
Shareholders' equity:
Common stock of $2 par value:
Authorized--100,000,000 shares;
Issued--38,110,995 shares in 1995 and
37,922,435 shares in 1994 76,222 75,845
Surplus 43,505 41,547
Loans to finance stock purchases (7,113) (5,914)
Net unrealized holding loss on
available-for-sale securities (2,925) (11,686)
Retained earnings 542,703 511,881
------------ ------------
Total shareholders' equity 652,392 611,673
------------ ------------
Total liabilities and shareholders'
equity $ 9,655,695 $ 9,265,137
============ ============
</TABLE>
<PAGE>
<TABLE>
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(In Thousands Except Per Share Data)
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
---------------------- -----------------------
1995 1994 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 133,440 $ 108,550 $ 260,264 $ 213,442
Interest and dividends on
investment securities 33,384 15,070 67,682 27,269
Interest on investment
securities available
for sale 9,753 12,296 19,038 23,007
Interest on trading account
securities 1,300 3,344 2,200 7,630
Interest on federal funds
sold and securities
purchased under agreements
to resell 1,024 1,058 2,086 2,754
Interest on interest bearing
deposits with other banks 2 214 4 431
---------- ---------- ---------- ----------
Total interest income 178,903 140,532 351,274 274,533
INTEREST EXPENSE:
Interest on deposits 70,638 45,048 135,748 86,661
Interest on federal funds
purchased and securities
sold under agreements to
repurchase 10,668 5,784 20,831 11,131
Interest on other short-
term borrowings 2,906 2,463 4,766 3,778
Interest on FHLB and other
borrowings 8,659 3,792 17,176 7,248
---------- ---------- ---------- ----------
Total interest expense 92,871 57,087 178,521 108,818
---------- ---------- ---------- ----------
Net interest income 86,032 83,445 172,753 165,715
Provision for loan losses 2,120 27 3,420 2,305
---------- ---------- ---------- ----------
Net interest income
after provision for
loan losses 83,912 83,418 169,333 163,410
NONINTEREST INCOME:
Service charges on deposit
accounts 13,004 11,214 25,063 21,473
Trust fees 4,024 4,371 7,769 8,822
Trading account profits
(losses) and commissions 2,555 (2,388) 4,174 (6,265)
Investment securities
gains, net 2,847 3,159 2,882 3,159
Loss on purchase of
securities from common
trust fund - (8,222) - (8,222)
Other 9,853 8,147 18,713 16,984
---------- ---------- ---------- ----------
Total noninterest income 32,283 16,281 58,601 35,951
NONINTEREST EXPENSE:
Salaries and benefits 37,027 31,628 73,872 64,675
Net occupancy expense 4,840 5,777 10,832 11,182
Equipment expense 5,366 4,824 10,145 9,757
FDIC insurance premium 3,952 3,403 7,905 6,775
Other 21,791 18,102 44,461 33,768
---------- ---------- ---------- ----------
Total noninterest expense 72,976 63,734 147,215 126,157
---------- ---------- ---------- ----------
Net income before income
tax expense 43,219 35,965 80,719 73,204
Income tax expense 15,412 11,269 28,571 24,329
---------- ---------- ---------- ----------
NET INCOME $ 27,807 $ 24,696 $ 52,148 $ 48,875
========== ========== ========== ==========
NET INCOME PER COMMON SHARE $ 0.72 $ 0.65 $ 1.36 $ 1.28
Weighted average shares
outstanding 38,305 38,205 38,231 38,160
Dividends per common share $ 0.28 $ 0.23 $ 0.56 $ 0.46
</TABLE>
<PAGE>
<TABLE>
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
<CAPTION>
Six Months Ended
June 30
--------------------------
1995 1994
----------- -----------
<S> <C> <C>
Operating Activities:
Net income $ 52,148 $ 48,875
Adjustments to reconcile net income to
cash provided by operations:
Depreciation and amortization 14,268 14,607
Accretion of discount and loan fees (5,890) (5,795)
Provision for loan losses 3,420 2,305
Net change in trading account securities (14,437) 196,931
Net change in mortgage loans available
for sale 10,026 2,652
Gain on sale of investment securities (2,882) (3,159)
Loss on purchase of securities from common
trust fund - 8,222
(Gain) loss on sale of premises and
equipment 21 (35)
(Gain) loss on sale of other real estate
owned (214) 148
Provision for losses on other real
estate owned 301 (511)
(Increase) decrease in interest receivable 2,756 (2,721)
Increase in other assets (34,006) (3,131)
Increase in interest payable 9,818 627
Decrease in taxes payable (3,585) (4,861)
Increase (decrease) in other payables (1,474) 1,087
----------- -----------
Net cash provided by operating
activities 30,270 255,241
----------- -----------
Investing Activities:
Proceeds from sales of investment securities
permitted by FAS115 29,970 3,360
Proceeds from maturities/calls of investment
securities 122,510 175,946
Purchases of investment securities (2,695) (526,176)
Proceeds from sales of securities available
for sale 358,603 220,027
Proceeds from maturities/calls of securities
available for sale 55,122 96,643
Purchases of securities available for sale (535,322) (473,773)
Net (increase) decrease in federal funds
sold and securities purchased under
agreements to resell (13,746) 201,235
Net increase in loan portfolio (357,678) (38,625)
Acquisitions, net of cash acquired - 6,132
Purchases of premises and equipment (15,061) (15,367)
Proceeds from sales of premises
and equipment 503 185
Net decrease in interest bearing deposits
with other banks - 376
Proceeds from sales of other real estate
owned 2,319 3,357
----------- -----------
Net cash used by investing activities (355,475) (346,680)
----------- -----------
</TABLE>
<PAGE>
<TABLE>
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
<CAPTION>
Six Months Ended
June 30
--------------------------
1995 1994
----------- ------------
<S> <C> <C>
Financing Activities:
Net increase (decrease) in demand deposits,
NOW accounts and savings accounts $ (200,280) $ 2,290
Net increase in time deposits 165,600 154,379
Net increase (decrease) in federal funds
purchased 363,888 (150,371)
Net decrease in securities sold under
agreements to repurchase (132,322) (39,889)
Net increase in short-term borrowings 146,047 200,948
Repayment of long-term debt (3,063) (94)
Purchase of treasury shares - (6)
Common dividends paid (21,326) (16,896)
Repayment of loans to finance stock purchases 474 542
Proceeds from exercise of stock options 2,218 577
----------- -----------
Net cash provided by financing activities 321,236 151,480
----------- -----------
Net increase (decrease) in cash and due
from banks (3,969) 60,041
Cash and due from banks at beginning of period 490,494 291,520
----------- -----------
Cash and due from banks at end of period $ 486,525 $ 351,561
=========== ===========
Schedule of noncash investing and financing
activities:
Transfers of loans to other real estate owned $ 1,920 $ 1,167
Loans to facilitate the sale of other real
estate owned 989 9,967
Loans to finance stock purchases 1,611 -
Tax benefit realized upon exercise of
stock options 117 -
Acquisition of banks:
Fair value of assets acquired $ 309,037
Liabilities assumed 273,725
-----------
Cash received $ 35,312
===========
</TABLE>
<PAGE>
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
NOTE 1 - General
The consolidated financial statements in this report have not been audited.
In the opinion of management, all adjustments necessary to present fairly the
financial position and the results of operations for the interim periods have
been made. All such adjustments are of a normal recurring nature. The results
of operations are not necessarily indicative of the results of operations for
the full year or any other interim periods. For further information, refer to
the consolidated financial statements and footnotes included in the Company's
annual report on Form 10-K for the year ended December 31, 1994.
NOTE 2 - Business Combinations
On January 27, 1994, the Company acquired 1st Performance National Bank
("1st Performance"), of Jacksonville, Florida, in a cash transaction. The
acquisition was accounted for as a purchase. At the date of acquisition, 1st
Performance had assets of $278 million and equity of $35 million.
The Company completed the acquisition of Security Bank, N.A. ("Security") of
Houston, Texas on May 1, 1994, with the issuance of 465,297 shares of the
Company's common stock. At the date of acquisition, Security had assets of $76
million and equity of $6 million. The transaction was accounted for under the
pooling-of-interests method of accounting and accordingly all prior period
information has been restated.
On May 12, 1994, the Company acquired three branches of Anchor Savings Bank
in the Jacksonville, Florida area with deposits of $31 million and assets of $1
million, with the balance received in cash. The deposit assumption and branch
acquisition were accounted for as a purchase.
On October 1, 1994, the Company completed the acquisition of 22 branches of
First Heights Bank, fsb, of Houston, Texas, with deposits of approximately $870
million and assets of $68 million, with the balance received in cash. The
deposit assumption and branch acquisition were accounted for as a purchase.
The Company completed the acquisition of Southwest Bankers, Inc.
("Southwest"), of San Antonio, Texas, and its bank subsidiary, The Bank of San
Antonio, on March 7, 1995, with the issuance of 949,987 shares of the Company's
common stock. At the date of acquisition, Southwest had assets of $142 million
and equity of $9 million. The transaction was accounted for under the pooling-
of-interests method of accounting and accordingly all prior period information
has been restated.
On July 19, 1995, the Company signed a letter of intent to acquire Flower
Mound Bancshares, Inc. ("Flower Mound"), of Dallas, Texas, and its bank
subsidiary, Security Bank, for 340,000 shares of the Company's common stock.
At June 30, 1995, Flower Mound had assets of $47 million and equity of $4
million. It is anticipated that the transaction will close in the first
quarter of 1996 and will be accounted for under the pooling-of-interests method
of accounting.
NOTE 3 - Recently Issued Accounting Standards
During the second quarter of 1993, the Financial Accounting Standards Board
("FASB") issued FASB Statement No. 114, Accounting by Creditors for Impairment
of a Loan, as amended by FASB Statement No. 118, Accounting by Creditors for
Impairment of a Loan--Income Recognition and Disclosures, ("FAS114"). FAS114
requires that impaired loans be measured based on the present value of expected
future cash flows discounted at the loan's effective interest rate, which is
the contractual interest rate adjusted for any deferred loan fees or costs,
premium, or discount existing at the inception or acquisition of the loan. As
a practical alternative, a company may base the measurement of impairment on a
loan's observable market price, or the fair value of the collateral if the
repayment of the loan is expected to be provided solely by the collateral
(i.e., the loan is collateral dependent). FAS114 is effective for fiscal years
beginning after December 15, 1994.
<PAGE>
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
NOTE 3 - Recently Issued Accounting Standards (continued)
The Company adopted the provisions of FAS114 during the first quarter of
1995. At June 30, 1995, the recorded investment in loans that are considered
impaired under FAS114 was $52.4 million, of which $12.9 million were on
nonaccrual status. Included in this amount is $52.3 million of impaired loans
for which the related allowance for loan losses was $13.1 million and $100,000
of loans that have no related allowance for loan losses. The adoption of
FAS114 did not have a material impact on the Company's results of operations.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
Overview
Net income for the quarter ended June 30, 1995, increased 13 percent to
$27.8 million while net income for the first six months of 1995 increased 7
percent to $52.1 million from the comparable prior year periods. Net income
per common share for the second quarter increased 11 percent to $0.72 compared
to the same period in 1994 while net income per common share for the first six
months of 1995 increased 6 percent to $1.36. Net interest income increased by
$2.6 million, or 3 percent, during the second quarter of 1995 and $7.0 million,
or 4 percent, during the first six months of the year. Noninterest income
increased 98 percent in the second quarter of 1995 while noninterest expense
increased 15 percent. For the first six months of 1995, noninterest income and
noninterest expense increased 63 percent and 17 percent, respectively.
In March of 1995, the Company completed the acquisition of Southwest
Bankers, Inc. ("Southwest"), of San Antonio, Texas, and its bank subsidiary,
The Bank of San Antonio, for 949,987 shares of the Company's common stock. The
acquisition of Southwest was accounted for under the pooling-of-interests
method of accounting and accordingly the financial statements have been
restated for all periods to reflect the acquisition. During the fourth quarter
of 1994, the Company completed the acquisition of 22 branches of First Heights
Bank, fsb, ("First Heights"), of Houston, Texas, with deposits of approximately
$870 million and assets of $68 million. A complete list of acquisitions is
included in "Acquisitions" and "Pending Acquisitions" under Item 1 - Business
in the Company's 1994 Form 10-K.
Net Interest Income
Net interest income for the three months ended June 30, 1995, increased $2.6
million over the second quarter of 1994 to $86.0 million. On a tax-equivalent
basis, net interest income increased $2.4 million or 3 percent. This increase
was a result of a $38.2 million, or 27 percent, increase in interest income on
a tax-equivalent basis and a $35.8 million, or 63 percent, increase in interest
expense. The increase in interest income was due to an increase in the average
yield on earning assets from 7.78 percent to 8.36 percent coupled with an
increase in average earning assets of $1.3 billion. The largest portion of the
increase in earning assets occurred in the average balances of investment
securities and loans, specifically real estate mortgages and commercial loans,
with a decline in the average balances of all other categories of earning
assets. This increase in the average balance of loans and investment
securities was funded by cash received in the acquisition of First Heights as
well as growth in all categories of deposits and an increase in FHLB and other
borrowings.
Interest expense for the three months ended June 30, 1995, increased by
$35.8 million, or 63 percent, from the prior year, due principally to a 20
percent increase in average interest bearing deposits and a 114 basis point
increase in the average rate paid on deposits. The increase in the average
balance of deposits was primarily due to the assumption of approximately $870
million in deposits in the First Heights acquisition. Additionally, the
average balances of federal funds purchased and securities sold under
agreements to repurchase increased 30 percent while the average balance of FHLB
advances and other borrowings increased by $156 million, as $50 million of
subordinated debentures issued by the Company in the third quarter of 1994 and
additional FHLB advances of $110 million in the fourth quarter of 1994 were
used to fund asset growth and reduce other short-term borrowings.
For the six months ended June 30, 1995, net interest income increased $7.0
million, or 4 percent, over the prior year period to $172.8 million. On a tax-
equivalent basis, net interest income increased $6.7 million, or 4 percent. An
increase in the average yield on earning assets from 7.76 percent to 8.32
percent along with an increase in average earning assets of $1.4 billion
resulted in a $76.4 million, or 28 percent, increase in interest income. As
noted above, growth in the average balance of deposits and FHLB and other
borrowings and the investment of cash received in the First Heights acquisition
funded the increase in loans and investment securities.
Interest expense for the six months ended June 30, 1995, increased by $69.7
million, or 64 percent, from the prior year as the average balance of interest
bearing liabilities, primarily interest bearing deposits, increased by 22
percent and the average rate paid on liabilities rose by 128 basis points. The
increase in the average rate paid on interest bearing liabilities resulted from
a 104 basis point increase in the rate paid on deposits and more than a 200
basis point increase in the rate paid on all other categories of borrowings.
The average balances of federal funds purchased and securities sold under
agreements to repurchase increased 19 percent while the average balance of FHLB
advances and other borrowings increased by 48 percent as a result of the
additional borrowings discussed above.
Net Interest Margin
Net interest margin, stated as a percentage, is the yield on average earning
assets obtained by dividing the difference between the overall interest income
on earning assets and the interest expense paid on all funding sources by
average earning assets. For the first six months of 1995, the net interest
margin, on a tax-equivalent basis, was 4.12 percent compared to 4.72 percent
for the same period in 1994. This 60 basis point decrease resulted from the
changes in rates and volumes of earning assets and the corresponding funding
sources noted previously. While the yield on interest earning assets increased
56 basis points, including a 73 basis point increase in the yield on loans, the
rate paid on all categories of interest bearing liabilities increased ranging
from a 104 basis point increase in the rate paid on interest bearing deposits
to a 269 basis point increase in the rate paid on FHLB and other borrowings.
The impact of this decline on net interest margin was partially mitigated by a
4 percent increase in the average balance of noninterest bearing demand
deposits. During the first six months of 1995, the positive impact of the
Company's use of interest rate contracts continued to decline. While the use
of interest rate contracts increased the Company's net interest margin by 16
basis points during the six months ended June 30, 1994, the use of interest
rate contracts increased the Company's net interest margin by only 2 basis
points during the same period in 1995.
For the second quarter of 1995, the net interest margin, on a tax-equivalent
basis, was 4.05 percent compared to 4.65 percent for the same period in 1994.
An increase in the rates paid on deposits from 3.66 percent to 4.80 percent was
the major contributor to the decline in the net interest margin. The impact of
the 131 basis point increase in rate paid on interest bearing liabilities was
partially offset by a 58 basis point increase in the average rate earned on
interest earning assets from 7.78 percent to 8.36 percent. During the second
quarter of 1995, the Company's net interest margin was positively impacted by
the Company's use of interest rate contracts, increasing taxable equivalent net
interest margin by 2 basis points as compared to a positive impact of 14 basis
points for the same period in 1994. Due to the fact that the Company continues
to be liability sensitive at June 30, 1995, it is anticipated that the
Company's net interest margin will continue to be impacted by the more frequent
repricing of interest bearing liabilities.
The tables on the following page detail the components of the changes in net
interest income (on a tax-equivalent basis) by major category of interest
earning assets and interest bearing liabilities for the six months and three
months ended June 30, 1995, as compared to comparable periods of 1994 (in
thousands):
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1995
---------------------------------------------
Change
1995 Attributed to
to ---------------------------------
1994 Volume Rate Mix
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Interest income:
Loans $ 46,857 $ 25,435 $ 19,151 $ 2,271
Investment securities 40,182 45,441 (2,051) (3,208)
Investment securities available
for sale (4,096) (3,710) (460) 74
Trading account securities (5,434) (5,295) (450) 311
Fed funds and resale agreements (668) (1,563) 2,069 (1,174)
Time deposits in other banks (427) (427) (11) 11
--------- --------- --------- ---------
Increase in interest income $ 76,414 $ 59,881 $ 18,248 $ (1,715)
========= ========= ========= =========
Interest expense:
Deposits $ 49,087 $ 23,713 $ 20,668 $ 4,706
Fed funds purchased and repos 9,700 2,061 6,445 1,194
Other short-term borrowings 988 (677) 2,028 (363)
FHLB and other borrowings 9,928 3,464 4,374 2,090
--------- --------- --------- ---------
Increase in interest expense $ 69,703 $ 28,561 $ 33,515 $ 7,627
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
June 30, 1995
---------------------------------------------
Change
1995 Attributed to
to ---------------------------------
1994 Volume Rate Mix
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Interest income:
Loans $ 24,868 $ 14,254 $ 9,387 $ 1,227
Investment securities 18,217 18,379 (75) (87)
Investment securities available
for sale (2,593) (2,598) 6 (1)
Trading account securities (2,039) (1,866) (389) 216
Fed funds and resale agreements (34) (384) 548 (198)
Time deposits in other banks (212) (212) (10) 10
--------- --------- --------- ---------
Increase in interest income $ 38,207 $ 27,573 $ 9,467 $ 1,167
========= ========= ========= =========
Interest expense:
Deposits $ 25,590 $ 11,027 $ 11,852 $ 2,711
Fed funds purchased and repos 4,884 1,727 2,431 726
Other short-term borrowings 443 (443) 1,080 (194)
FHLB and other borrowings 4,867 1,801 2,078 988
--------- --------- --------- ---------
Increase in interest expense $ 35,784 $ 14,112 $ 17,441 $ 4,231
========= ========= ========= =========
</TABLE>
<PAGE>
Noninterest Income and Noninterest Expense
For the six months ended June 30, 1995, noninterest income increased $22.7
million, or 63 percent, to $58.6 million. Noninterest income for the second
quarter of 1995 increased $16.0 million, or 98 percent, over the same period in
1994. Service charges on deposit accounts increased $1.8 million, or 16
percent, while trading account profits (losses) and commissions increased $4.9
million during the second quarter of 1995. During the first six months of the
year, service charges on deposit accounts increased $3.6 million, or 17
percent, and trading account profits (losses) and commissions increased $10.4
million. The increase in service charges resulted from the increase in
deposits. The increase in trading account profits and commissions on bond
sales and trading activities was due chiefly to the absence of losses incurred
during the first and second quarters of 1994 on collateralized mortgage
obligation inverse floaters ("inverse floaters") held in the Company's trading
account. All of the inverse floaters previously held in the trading account
were sold in the first and second quarters of 1994. It should be noted that
changes in the trading account profits (losses) and commissions in future
quarters cannot be predicted accurately because of the uncertainty of changes
in market conditions. There can be no assurance that such amounts will or will
not continue at their current levels. For the six months of 1995, trading
account profits related specifically to derivative securities were
approximately $280,000, consisting of $720,000 of profits related to
collateralized mortgage obligations ("CMOs") held in the trading account offset
by $440,000 of losses on non-CMO derivative securities, specifically options
and interest rate swaps, caps, and floors.
The components of trading account assets at June 30, 1995, and December 31,
1994, are presented in the following table.
<TABLE>
<CAPTION>
June 30, 1995 December 31, 1994
------------- -----------------
(in Thousands)
<S> <C> <C>
U.S. Treasury and Government agency $ 41,923 $ 26,599
State and political subdivisions 9,503 9,046
Mortgage-backed pass through securities 11,913 15,567
Other securities 346 201
Derivative securities:
Collateralized mortgage obligations 6,249 5,344
Interest rate floors and caps 2,479 1,178
Other options 36 77
---------- ----------
$ 72,449 $ 58,012
========== ==========
</TABLE>
The $8.2 million loss on purchase of securities from common trust fund in
1994 resulted from the purchase of inverse floaters by the Company during the
second quarter of 1994 from a common trust fund managed by the trust division
of the Company's lead bank. Due to the increase in the general level of
interest rates, the common trust fund customers faced significant losses on
inverse floaters held in the portfolio. In evaluating the suitability of these
investments for the common trust fund subsequent to the decline in market
value, the Company determined that it would be in the best interests of the
Company, its lead bank, and its trust customers to purchase these securities at
book value from the common trust fund. As a result of this decision, the
Company purchased inverse floaters with a fair value of $27.0 million from the
common trust fund at the fund's cost of $35.2 million with the difference
between purchase price and fair value reflected in the Company's Statement of
Income as a separate component of noninterest income. The securities purchased
by the Company are reflected at its amortized cost of $26.2 million in its held
-to-maturity investment securities portfolio at June 30, 1995. Gains on the
sale of investment securities available for sale during the second quarter of
1995 and for the first six months of the year totaled approximately $1.5
million. In addition, during the second quarter of 1995, investment securities
held to maturity totaling $30 million were sold prior to maturity either within
three months of maturity or only after at least 85 percent of the principal
outstanding had been collected, as permitted by FASB Statement No. 115,
Accounting for Certain Investments in Debt and Equity Securities ("FAS115").
Gains on these sales during the quarter totaled $1.2 million.
Noninterest expense increased $9.2 million, or 15 percent, during the second
quarter of 1995 over the same period in 1994. For the six months ended June
30, 1995, noninterest expense increased by 17 percent to $147.2 million.
Salaries increased $4.3 million, or 16 percent, for the second quarter while
employee benefits increased $1.1 million, or 26 percent. During the first six
months of 1995, salaries increased by $7.0 million, or 13 percent, while
employee benefits increased $2.1 million, or 22 percent. The increase in
salaries over 1994 levels was the result of the addition of personnel in
connection with the acquisition of 22 branches of First Heights, normal
business growth, and regular merit increases. The increase in employee
benefits was due to increased payroll tax expense and other employee benefits
associated with the First Heights acquisition as well as increased ESOP
expense. Net occupancy expense decreased 16 percent in the second quarter of
1995 and declined 3 percent in the first six months of the year due to
increased rental income related to the Company's headquarters partially offset
by additional depreciation and occupancy expenses resulting from the
acquisition of First Heights branches. The increase in deposits during 1995
resulted in a 16 percent increase in FDIC deposit insurance premiums for the
second quarter of 1995 and a 17 percent increase during the first six months of
the year. During the first six months of 1995, other noninterest expense
increased $10.7 million, or 32 percent, due to increases in legal and other
professional services expenses associated with acquisition activities and with
a proxy contest initiated by three directors of the Company during the first
quarter of 1995. For the second quarter of the year, noninterest expense
increased 20 percent to $21.8 million.
Income Taxes
Income tax expense increased by $4.1 million, or 37 percent, during the
second quarter of 1995 compared to the same period in 1994 and increased $4.2
million, or 17 percent, during the first six months of the year. The effective
tax rate for the first six months of 1995 was 35 percent, up from the 33
percent effective tax rate for the same period in 1994. The lower effective
tax rate in 1994 was due to reversal of prior period income tax accruals upon
receipt of the preliminary findings of an IRS audit.
Provision and Allowance for Loan Losses
The provision for loan losses for the three months ended June 30, 1995,
increased to $2.1 million from the $27,000 reported for the same period in
1994. For the six months ended June 30, 1995, the provision for loan losses
increased 48 percent, or $1.1 million. This increase resulted from a $1.3
million increase in net charge-offs during the first six months of 1995 as
compared to the prior year period. Net loan charge-offs expressed as an
annualized percentage of average loans for the first two quarters of 1995 were
0.15 percent compared with 0.12 percent for the first six months of 1994.
Management considers changes in the size and character of the loan portfolio,
changes in nonperforming and past due loans, historical loan loss experience,
the existing risk of individual loans, concentrations of loans to specific
borrowers or industries and existing and prospective economic conditions when
determining the adequacy of the loan loss allowance. The allowance for loan
losses at June 30, 1995, was $107.3 million compared to $108.3 million at
December 31, 1994. The ratio of the allowance for loan losses to loans
outstanding was 1.74 percent at June 30, 1995, down from 1.86 percent at
December 31, 1994.
Nonperforming Assets and Past Due Loans
Nonperforming assets, comprised of nonaccrual loans, renegotiated loans and
other real estate owned, totaled $24.3 million at June 30, 1995, compared to
$19.7 million at December 31, 1994, an increase of 24 percent. A substantial
portion of this increase was due to one commercial real estate loan totaling
$4.9 million that was placed on nonaccrual status in June, 1995. At June 30,
1995, the allowance for loan losses as a percentage of nonperforming loans was
576 percent as compared to 852 percent at December 31, 1994. The allowance for
loan losses as a percentage of nonperforming loans and accruing loans ninety
days or more past due decreased from 658 percent at December 31, 1994, to 486
percent at June 30, 1995.
Nonperforming assets as a percentage of total loans and other real estate
owned increased to 0.39 percent at June 30, 1995, from 0.34 percent at December
31, 1994. The amount carried in other repossessed assets at June 30, 1995, was
$96,000, down from $235,000 at December 31, 1994. Loans past due ninety days
or more but still accruing interest decreased over 7 percent from the $3.7
million at December 31, 1994, to $3.5 million at June 30, 1995, representing
0.06 percent of total loans and other real estate owned.
The Company regularly monitors selected accruing loans for which general
economic conditions or changes within a particular industry could cause the
borrowers financial difficulties. This continuous monitoring of the loan
portfolio and the related identification of loans with a high degree of credit
risk are essential parts of the Company's credit management. Management
continues to emphasize maintaining a low level of nonperforming assets and
returning current nonperforming assets to an earning status.
Financial Condition
Overview
Total assets at June 30, 1995, were $9.7 billion, up 4 percent from December
31, 1994. This increase was due principally to a six percent increase in
loans. Retained earnings remained the primary source of growth for the
Company's capital base.
Assets and Funding
At June 30, 1995, earning assets totaled $8.9 billion, an increase of 4
percent from December 31, 1994. The mix of earning assets shifted moderately
in the first six months of 1995 with a significant portion of the increase in
earning assets attributable to the growth in loans while total investment
securities decreased slightly. Loans comprised 70 percent of total earning
assets at June 30, 1995, as compared to 68 percent at December 31, 1994, while
the percentage of earning assets represented by total investment securities
decreased from 30 percent to 29 percent. Trading account securities increased
$14.4 million, or 25 percent, and federal funds sold and securities purchased
under agreements to resell increased $13.7 million.
A $93.7 million increase in interest bearing deposits during the second
quarter of 1995 was more than offset by a $128.4 million decrease in
noninterest bearing deposits. During the second quarter of 1995, the mix of
short-term liabilities moved toward federal funds purchased and securities sold
under agreements to repurchase and other short-term borrowings. At June 30,
1995, deposits accounted for 74 percent of the Company's funding, down from 78
percent at year end.
Liquidity and Capital Resources
Net cash provided by operating activities totaled $30.2 million for the six
months ended June 30, 1995. For the first two quarters of 1995, net cash used
by investing activities of $355.5 million consisted of proceeds from maturities
of investment securities of $122.5 million, proceeds from maturities of
securities available for sale of $55.1 million, and proceeds from sales of
securities available for sale of $358.6 million with cash outflows of $535.3
million in purchases of investment securities available for sale, a $357.7
million increase in loans outstanding, and an increase of $13.7 million in
federal funds sold and securities purchased under agreements to resell. Also
included in investing cash inflows were $30.0 million in proceeds from the sale
of held-to-maturity investment securities that are permitted under FAS115.
FAS115 allows such sales if the sale of securities occurs near enough to the
maturity date that interest rate risk is substantially eliminated or the sale
of securities occurs after a substantial portion of the principal outstanding
at acquisition has been received. Net cash provided by financing activities of
$321.4 million consisted of the payment of $21.3 million in common stock
dividends as well as decreases in securities sold under agreements to
repurchase and demand deposits, NOW accounts and savings accounts funded in
part by increases in time deposits, federal funds purchased, and other short-
term borrowings.
Total shareholders' equity at June 30, 1995, was 6.76 percent of total
assets compared to 6.60 percent at December 31, 1994. The increase since year-
end 1994 reflects the seven percent increase in shareholders' equity in
contrast to the four percent increase in total assets. The growth in
shareholders' equity consisted of earnings retained after payment of dividends
on common stock coupled with the decrease in the net unrealized holding loss on
available-for-sale securities. The change in the unrealized holding loss in
the Company's available-for-sale portfolio from December 31, 1994, to June 30,
1995, of $8.8 million has been reflected as additional shareholders' equity.
The leverage ratio, defined as period-end common equity adjusted for
goodwill divided by average quarterly assets adjusted for goodwill, was 6.73
percent at June 30, 1995, and 6.62 percent at December 31, 1994. Similarly,
the Company's tangible leverage ratio, defined as period-end common equity
adjusted for all intangibles divided by average quarterly assets adjusted for
all intangibles, increased from 6.37 at December 31, 1994, to 6.51 at June 30,
1995.
Tier I capital and total qualifying capital (Tier I capital plus Tier II
capital), as defined by regulatory agencies, as of June 30, 1995, exceeded the
target ratios of 6.00 percent and 10.00 percent, respectively, under current
regulations. The Tier I and total qualifying capital ratios at June 30, 1995,
were 9.69 percent and 12.88 percent, respectively. Tier II capital includes
supplemental capital components such as qualifying allowances for loan losses,
certain qualifying classes of preferred stock and qualifying subordinated debt.
Increased regulatory activity in the financial industry as a whole will
continue to impact the structure of the industry; however, management does not
anticipate any negative impact on the capital resources or operations of the
Company.
<PAGE>
<TABLE>
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
Allowance for Loan Losses/Nonperforming Assets
(In Thousands)
(Unaudited)
<CAPTION>
Six Months Ended
June 30
---------------------------
1995 1994
----------- -----------
<S> <C> <C>
ALLOWANCE FOR LOAN LOSSES
Balance at beginning of period $ 108,337 $ 111,744
Add: Provision charged to earnings 3,420 2,305
Balance due to acquisition - 810
Deduct: Loans charged off 7,478 6,959
Loan recoveries (3,027) (3,769)
----------- -----------
Net charge-offs 4,451 3,190
----------- -----------
Balance at end of period $ 107,306 $ 111,669
=========== ===========
Net charge-offs as a percentage of
average loans (annualized) 0.15% 0.12%
Recoveries as a percentage of charge-offs 40.48% 54.16%
</TABLE>
<TABLE>
<CAPTION>
June 30, 1995 December 31, 1994
------------- -----------------
<S> <C> <C>
NONPERFORMING ASSETS
Nonaccrual loans $ 16,787 $ 11,283
Renegotiated loans 1,830 1,428
------------ -----------
Total nonperforming loans 18,617 12,711
Other real estate 5,729 6,980
------------ -----------
Total nonperforming assets $ 24,346 $ 19,691
============ ===========
Accruing loans ninety days past due $ 3,465 $ 3,745
============ ===========
Other repossessed assets $ 96 $ 235
============ ===========
Allowance for loan losses $ 107,306 $ 108,337
============ ===========
Allowance as a percentage of loans 1.74% 1.86%
Total nonperforming loans as a percentage
of loans and ORE 0.30% 0.22%
Total nonperforming assets as a percentage
of loans and ORE 0.39% 0.34%
Accruing loans ninety days past due as a
percentage of loans and ORE 0.06% 0.06%
Allowance for loan losses as a percentage
of nonperforming loans 576.39% 852.31%
Allowance for loan losses as a percentage
of nonperforming assets 440.75% 550.19%
</TABLE>
<PAGE>
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION Page
--------------------------- ----
Item 4 Submission of Matters to a Vote of Security Holders
The election of three directors, approval of auditors and two
shareholder proposals were submitted to a vote of shareholders at the
Company's Annual Meeting held April 11, 1995. D. Paul Jones, Jr., Charles
W. Daniel and George W. Hansberry, M.D. were elected upon receipt of the
following votes for/against, respectively, 19,492,256/175,876,
19,485,143/182,989, and 19,475,867/183,782. James R. Hayes, David B.
Henderson and Dr. Wendall H. Taylor, Sr. were defeated upon receipt of the
following votes for/withheld, respectively, 14,205,676/170,671,
14,204,926/171,421, and 14,204,912/171,435. William Eugene Davenport,
Marshall Durbin, Jr., Tranum Fitzpatrick, Goodwin L. Myrick, John S. Stein,
Harry B. Brock, Jr., Stanley M. Brock, and Garry N. Drummond, Sr. were not
subject to reelection and their terms continued after the meeting. KPMG
Peat Marwick LLP was approved as independent auditors by a vote
for/against/abstain of 33,411,633/150,951/440,446. Two shareholder
proposals of amendments to the Company's by-laws, which required a vote of
80% of the outstanding shares, failed to be adopted. One proposal related
to notification to shareholders of acquisition or merger proposals. The
second proposal related to shareholder approval of certain executive
compensation. These proposals received votes respectively for/against/
abstain, 16,432,715/11,877,053/5,607,159 and 17,190,265/11,251,290/5,484,584.
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
(10)(a) Compass Bancshares, Inc., 1982 Long Term Incentive Plan (incorporated
by reference to Exhibit 1 to the Company's Registration Statement on
Form S-8 filed June 15, 1983, with the Securities and Exchange
Commission)
(10)(b) Compass Bancshares, Inc., 1989 Long Term Incentive Plan (incorporated
by reference to Exhibit 28 to the Company's Registration Statement on
Form S-8 filed February 21, 1991, with the Securities and Exchange
Commission)
(10)(c) Supplemental Retirement Agreement, dated as of March 18, 1991, between
Compass Bank and Harry B. Brock, Jr. (incorporated by reference to
Exhibit 10(c) to the Company's Form 10-K for the year ended December
31, 1991, filed March 26, 1992, with the Securities and Exchange
Commission)
(10)(d) Employment Agreement, dated December 14, 1994, between Compass
Bancshares, Inc. and D. Paul Jones, Jr. (incorporated by reference to
Exhibit 10(d) to the Company's Form 10-K for the year ended December
31, 1994, filed February 27, 1995, with the Securities and Exchange
Commission)
(10)(e) Employment Agreement, dated December 14, 1994, between Compass
Bancshares, Inc. and Jerry W. Powell (incorporated by reference to
Exhibit 10(e) to the Company's Form 10-K for the year ended December
31, 1994, filed February 27, 1995, with the Securities and Exchange
Commission)
(10)(f) Employment Agreement, dated December 14, 1994, between Compass
Bancshares, Inc. and Garrett R. Hegel (incorporated by reference to
Exhibit 10(f) to the Company's Form 10-K for the year ended December
31, 1994, filed February 27, 1995, with the Securities and Exchange
Commission)
<PAGE>
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION Page
--------------------------- ----
Item 6 Exhibits and Reports on Form 8-K (continued)
(a) Exhibits (continued)
(10)(g) Employment Agreement, dated December 14, 1994, between Compass
Bancshares, Inc. and Byrd Williams (incorporated by reference to
Exhibit 10(g) to the Company's Form 10-K for the year ended December
31, 1994, filed February 27, 1995, with the Securities and Exchange
Commission)
(10)(h) Employment Agreement, dated December 14, 1994, between Compass
Bancshares, Inc. and Charles E. McMahen (incorporated by reference to
Exhibit 10(h) to the Company's Form 10-K for the year ended December
31, 1994, filed February 27, 1995, with the Securities and Exchange
Commission)
(11) Computation of Per Share Earnings 20
(12) Ratio of Earnings to Fixed Charges 21
(27) Financial Data Schedule
(b) Reports on Form 8-K
None
<PAGE>
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements 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.
August 11, 1995 /s/ GARRETT R. HEGEL
--------------- ---------------------------
Date By Garrett R. Hegel, as its
Chief Financial Officer
<TABLE>
Exhibit (11)
Compass Bancshares, Inc. and Subsidiaries
Computation of Earnings Per Share
Three and Six Months Ended June 30, 1995 and 1994
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
-------------------- --------------------
1995 1994 1995 1994
--------- --------- --------- ---------
(in Thousands Except Per Share Data)
<S> <C> <C> <C> <C>
PRIMARY:
Weighted average shares outstanding 38,066 37,890 38,014 37,885
Net effect of the assumed exercise
of stock options - based on the
treasury stock method using
average market price 239 315 217 275
--------- --------- --------- ---------
Total weighted average shares
and common stock equivalents
outstanding 38,305 38,205 38,231 38,160
========= ========= ========= =========
Net income available to common
shareholders $ 27,807 $ 24,696 $ 52,148 $ 48,875
========= ========= ========= =========
Net income per common share $ 0.72 $ 0.65 $ 1.36 $ 1.28
========= ========= ========= =========
FULLY DILUTED:
Weighted average shares outstanding 38,066 37,890 38,014 37,885
Net effect of the assumed exercise
of stock options - based on the
treasury stock method using
average market price or period-end
market price, whichever is higher 282 315 282 293
--------- --------- --------- ---------
Total weighted average shares and
common stock equivalents
outstanding 38,348 38,205 38,296 38,178
========= ========= ========= =========
Net income $ 27,807 $ 24,696 $ 52,148 $ 48,875
========= ========= ========= =========
Net income per common share $ 0.72 $ 0.65 $ 1.36 $ 1.28
========= ========= ========= =========
</TABLE>
<TABLE>
Exhibit (12)
Compass Bancshares, Inc. and Subsidiaries
Ratio of Earnings to Fixed Charges
Six Months Ended June 30, 1995 and 1994
<CAPTION>
Six Months Ended
June 30
------------------------------
1995 1994
---------- ----------
(in Thousands)
<S> <C> <C>
Pretax income $ 80,719 $ 73,204
Add fixed charges:
Interest on deposits 135,748 86,661
Interest on borrowings 42,773 22,157
Portion of rental expense representing
interest expense 1,700 1,403
---------- ----------
Total fixed charges 180,221 110,221
---------- ----------
Income before fixed charges $ 260,940 $ 183,425
========== ==========
Pretax income $ 80,719 $ 73,204
Add fixed charges (excluding interest on
deposits):
Interest on borrowings 42,773 22,157
Portion of rental expense representing
interest expense 1,700 1,403
---------- ----------
Total fixed charges 44,473 23,560
---------- ----------
Income before fixed charges
(excluding interest on deposits) $ 125,192 $ 96,764
========== ==========
Ratio of Earnings to Fixed Charges:
Including interest on deposits 1.45x 1.66x
Excluding interest on deposits 2.82x 4.11x
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND STATEMENT OF INCOME AND RELATED SUPPLEMENTAL
SCHEDULES OF COMPASS BANCSHARES, INC. AS OF AND FOR THE PERIOD ENDED JUNE 30,
1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
AND RELATED SUPPLEMENTAL SCHEDULES.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 486,525
<INT-BEARING-DEPOSITS> 99
<FED-FUNDS-SOLD> 60,281
<TRADING-ASSETS> 72,449
<INVESTMENTS-HELD-FOR-SALE> 849,621
<INVESTMENTS-CARRYING> 1,718,235
<INVESTMENTS-MARKET> 1,743,332
<LOANS> 6,170,578
<ALLOWANCE> (107,306)
<TOTAL-ASSETS> 9,655,695
<DEPOSITS> 7,154,233
<SHORT-TERM> 1,314,819
<LIABILITIES-OTHER> 49,352
<LONG-TERM> 484,899
<COMMON> 76,222
0
0
<OTHER-SE> 576,170
<TOTAL-LIABILITIES-AND-EQUITY> 9,655,695
<INTEREST-LOAN> 260,264
<INTEREST-INVEST> 86,720
<INTEREST-OTHER> 4,290
<INTEREST-TOTAL> 351,274
<INTEREST-DEPOSIT> 135,748
<INTEREST-EXPENSE> 178,521
<INTEREST-INCOME-NET> 172,753
<LOAN-LOSSES> 3,420
<SECURITIES-GAINS> 2,882
<EXPENSE-OTHER> 147,215
<INCOME-PRETAX> 80,719
<INCOME-PRE-EXTRAORDINARY> 80,719
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 52,148
<EPS-PRIMARY> 1.36
<EPS-DILUTED> 1.36
<YIELD-ACTUAL> 4.12
<LOANS-NON> 16,787
<LOANS-PAST> 3,465
<LOANS-TROUBLED> 1,830
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 108,337
<CHARGE-OFFS> 7,478
<RECOVERIES> 3,027
<ALLOWANCE-CLOSE> 107,306
<ALLOWANCE-DOMESTIC> 107,306
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0<F1>
<FN>
<F1>Information is not required to be disclosed in interim filings with the
Commission.
</FN>
</TABLE>
