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 March 31, 1996 Commission File No. 0-6032
COMPASS BANCSHARES, INC.
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(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 April 30, 1996
-------------------------- -----------------------------
Common Stock, $2 Par Value 39,631,263
The number of pages of this report is 18.
<PAGE>
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION Page
- ------------------------------ ----
Item 1 Financial Statements
Consolidated Balance Sheets as of March 31, 1996 and December 31,
1995 3
Consolidated Statements of Income for the Three Months Ended March
31, 1996 and 1995 4
Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 1996 and 1995 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 6 Exhibits and Reports on Form 8-K 15
<PAGE>
<TABLE>
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In Thousands)
(Unaudited)
<CAPTION>
March 31 December 31
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 441,887 $ 534,158
Federal funds sold and securities purchased
under agreements to resell 267,524 255,028
Interest bearing deposits with other banks 1,005 1,201
Investment securities (market value of
$677,237 and $736,670 for 1996 and
1995, respectively) 670,442 722,639
Investment securities available for sale 2,026,013 2,029,315
Trading account securities 81,350 101,916
Loans, net of unearned income 6,409,831 6,386,484
Allowance for loan losses (108,620) (108,727)
------------ ------------
Net loans 6,301,211 6,277,757
Premises and equipment, net 214,572 216,129
Other assets 161,470 172,760
------------ ------------
Total assets $10,165,474 $10,310,903
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest bearing $ 1,332,187 $ 1,415,078
Interest bearing 6,520,680 6,357,410
------------ ------------
Total deposits 7,852,867 7,772,488
Federal funds purchased and securities
sold under agreements to repurchase 799,402 1,056,033
Other short-term borrowings 104,639 115,728
Accrued expenses and other liabilities 77,102 70,393
FHLB and other borrowings 609,827 585,052
------------ ------------
Total liabilities 9,443,837 9,599,694
Shareholders' equity:
Common stock of $2 par value:
Authorized--100,000,000 shares;
Issued--38,667,251 shares in 1996 and
38,495,356 shares in 1995 77,335 76,991
Surplus 47,525 44,559
Loans to finance stock purchases (5,904) (5,628)
Unearned restricted stock (1,274) -
Net unrealized holding gain (loss) on
available-for-sale securities (3,196) 11,806
Retained earnings 607,151 583,481
------------ ------------
Total shareholders' equity 721,637 711,209
------------ ------------
Total liabilities and shareholders'
equity $10,165,474 $10,310,903
============ ============
</TABLE>
<PAGE>
<TABLE>
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(In Thousands Except Per Share Data)
(Unaudited)
<CAPTION>
Three Months Ended
March 31
-------------------------
1996 1995
---------- ----------
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans $138,738 $127,430
Interest and dividends on
investment securities 12,552 34,439
Interest on investment
securities available
for sale 34,552 9,331
Interest on trading account
securities 2,013 900
Interest on federal funds
sold and securities
purchased under agreements
to resell 1,371 1,065
Interest on interest bearing
deposits with other banks 18 30
---------- ----------
Total interest income 189,244 173,195
INTEREST EXPENSE:
Interest on deposits 75,901 65,302
Interest on federal funds
purchased and securities
sold under agreements to
repurchase 10,389 10,166
Interest on other short
-term borrowings 1,498 1,860
Interest on FHLB and other
borrowings 10,221 8,531
---------- ----------
Total interest expense 98,009 85,859
---------- ----------
Net interest income 91,235 87,336
Provision for loan losses 3,345 1,316
---------- ----------
Net interest income
after provision for
loan losses 87,890 86,020
NONINTEREST INCOME:
Service charges on deposit
accounts 13,336 12,182
Trust fees 4,392 3,745
Trading account profits and
commissions 4,127 1,619
Investment securities
gains, net 6,667 35
Other 13,798 8,899
---------- ----------
Total noninterest income 42,320 26,480
NONINTEREST EXPENSE:
Salaries and benefits 39,795 37,047
Net occupancy expense 5,799 6,019
Equipment expense 5,303 4,799
FDIC insurance premium 652 3,975
Other 21,984 22,857
---------- ----------
Total noninterest expense 73,533 74,697
---------- ----------
Net income before income
tax expense 56,677 37,803
Income tax expense 20,634 13,271
---------- ----------
NET INCOME $ 36,043 $ 24,532
========== ==========
NET INCOME PER COMMON SHARE $0.93 $0.64
Weighted average shares
outstanding 38,864 38,533
Dividends per common share $0.32 $0.28
</TABLE>
<PAGE>
<TABLE>
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
<CAPTION>
Three Months Ended
March 31
--------------------------
1996 1995
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 36,043 $ 24,532
Adjustments to reconcile net income to
cash provided by operations:
Depreciation and amortization 8,020 7,517
Accretion of discount and loan fees (4,507) (4,268)
Provision for loan losses 3,345 1,316
Net change in trading account securities 20,566 9,379
Net change in mortgage loans available
for sale (5,496) 13,616
Gain on sale of investment securities (6,667) (35)
Loss on sale of premises and equipment 83 14
Gain on sale of other real estate owned (14) (100)
Provision for losses on other real estate
owned 31 170
Gain on sale of branches (2,161) -
Decrease in interest receivable 5,880 13,050
Increase in other assets (435) (4,742)
Increase (decrease) in interest payable (4,569) 3,195
Increase in taxes payable 19,485 11,658
Increase (decrease) in other payables 1,295 (6,036)
---------- ----------
Net cash provided by operating activities 70,899 69,266
INVESTING ACTIVITIES:
Proceeds from maturities/calls of investment
securities 52,807 60,259
Purchases of investment securities (593) (1,617)
Proceeds from sales of securities
available for sale 252,312 13,346
Proceeds from maturities/calls of
securities available for sale 199,696 29,859
Purchases of securities available for sale (465,216) (573)
Net increase in federal funds
sold and securities purchased
under agreements to resell (12,496) (31,081)
Net increase in loan portfolio (45,800) (82,753)
Sale of branches (46,663) -
Purchases of premises and equipment (4,827) (6,143)
Proceeds from sales of premises
and equipment 132 479
Net decrease in interest bearing
deposits with other banks 196 198
Proceeds from sales of other
real estate owned 307 1,176
---------- ----------
Net cash used by investing activities (70,145) (16,850)
</TABLE>
<PAGE>
<TABLE>
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
<CAPTION>
Three Months Ended
March 31
--------------------------
1996 1995
---------- ----------
<S> <C> <C>
FINANCING ACTIVITIES:
Net increase (decrease) in demand deposits,
NOW accounts and savings accounts $151,541 $(186,785)
Net increase in time deposits 7,797 113,764
Net decrease in federal funds
purchased (228,463) (40,278)
Net decrease in securities sold
under agreements to repurchase (28,168) (43,742)
Net increase (decrease) in short-term
borrowings (11,089) 36,950
Issuance of FHLB advances and
other borrowings 25,000 -
Repayment of long-term debt (248) (3,018)
Purchase of treasury shares (134) -
Common dividends paid (12,373) (10,654)
Repayment of loans to finance stock
purchases 1,162 208
Proceeds from exercise of stock options 1,950 1,562
---------- ----------
Net cash used by financing activities (93,025) (131,993)
---------- ----------
Net decrease in cash and due from banks (92,271) (79,577)
Cash and due from banks at beginning of
period 534,158 494,141
---------- ----------
Cash and due from banks at end of period $441,887 $ 414,564
========== ==========
Schedule of noncash investing and
financing activities:
Transfers of loans to other real estate
owned $ 994 $ 1,082
Loans to facilitate the sale of
other real estate owned 760 411
Loans to finance stock purchases 1,438 1,462
Tax benefit realized upon exercise
of stock options 56 -
Issuance of restricted stock 1,296 -
Change in unrealized gain/loss on available
for sale securities (24,168) 8,431
Issuance of treasury stock upon exercise
of stock options 134 -
Divestiture of branches:
Liabilities sold $ 79,378
Fair value of assets sold 30,554
----------
Net liabilities sold $ 48,824
==========
</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, 1995.
NOTE 2 - Business Combinations
On February 1, 1996, the Company completed the acquisition of Flower Mound
Bancshares, Inc. ("Flower Mound"), of Dallas, Texas, and its bank subsidiary,
Security Bank, with the issuance of 342,930 shares of the Company's common
stock. At the date of closing, Flower Mound had assets of $46 million and
equity of $5 million. The transaction was accounted for under the pooling-of-
interests method of accounting and accordingly all prior period information has
been restated.
On April 11, 1996, the Company completed the acquisition of Equitable
BankShares, Inc. ("Equitable"), of Dallas, Texas, and its bank subsidiary,
Equitable Bank, with the issuance of 954,962 shares of the Company's common
stock. At the date of closing, Equitable had assets of $184 million and equity
of $13 million. The transaction was accounted for under the pooling-of-
interests method of accounting and all prior period information will be
restated in the second quarter of 1996.
On April 22, 1996, the Company completed the purchase of Post Oak Bank, of
Houston, Texas. At the date of closing, Post Oak Bank had assets of $323
million and deposits of $276 million. The transaction was accounted for under
the purchase method of accounting.
On November 28, 1995, the Company signed a definitive agreement to acquire
Peoples Bancshares, Inc. ("Peoples"), of Belton, Texas, and its bank
subsidiary, Peoples National Bank. At March 31, 1996, Peoples had assets of
$145 million and equity of $12 million. It is anticipated that the transaction
will close during the second quarter of 1996 and will be accounted for as a
purchase.
The Company signed a definitive agreement on December 15, 1995, to acquire
Royall Financial Corporation ("Royall") of Palestine, Texas, and its bank
subsidiary, Royall National Bank of Palestine. At March 31, 1996, Royall had
assets of $108 million and equity of $11 million. It is anticipated that the
transaction will close in the third quarter of 1996 and will be accounted for
under the pooling-of-interests method of accounting.
On February 21, 1996, the Company signed a definitive agreement to acquire
CFB Bancorp, Inc. ("CFB") of Jacksonville, Florida, and its bank subsidiary,
Community First Bank. At March 31, 1996, CFB had assets of $313 million and
equity of $20 million. It is anticipated that the transaction will close in
the third quarter of 1996 and will be accounted for as a purchase.
On March 14, 1996, the Company signed a definitive agreement to acquire
Texas American Bank ("Texas American") of San Antonio, Texas. At March 31,
1996, Texas American had assets of $61 million and equity of $4 million. It is
anticipated that the transaction will close in the third quarter of 1996 and
will be accounted for under the pooling-of-interests method of accounting.
The Company announced on May 6, 1996, the signing of a definitive agreement
to acquire ProBank of Houston, Texas. At March 31, 1996, ProBank had assets of
$68 million and equity of $3 million. It is anticipated that the transaction
will close during the third quarter and be accounted for as a purchase.
NOTE 3 - Impaired Loans
At March 31, 1996, the recorded investment in loans that are considered
impaired under generally accepted accounting principles was $36.4 million, of
which $12.7 million were on nonaccrual status. Included in this amount is
$36.1 million of impaired loans for which the related allowance for loan losses
was $9.2 million and $282,000 of loans that have no related allowance for loan
losses. At March 31, 1995, impaired loans totaled $44.9 million.
NOTE 4 - Subsequent Event
On April 29, 1996, the Company purchased 1,350,000 shares of its common
stock to be reissued in connection with the acquisition of CFB that is expected
to close in the third quarter of 1996.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
Overview
Net income for the quarter ended March 31, 1996, increased 47 percent to
$36.0 million over net income for the first quarter of 1995. Net income per
common share for the first quarter increased 45 percent to $0.93 compared to
the same period in 1995. Net interest income increased by $3.9 million, or 4
percent, during the first quarter of 1996 while noninterest income increased 60
percent and noninterest expense decreased 2 percent.
In February of 1996, the Company completed the acquisition of Flower Mound
Bancshares, Inc. ("Flower Mound"), of Dallas, Texas, and its bank subsidiary,
Security Bank, for 342,930 shares of the Company's common stock. The
acquisition of Flower Mound 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. A complete list of
acquisitions is included in "Acquisitions" and "Pending Acquisitions" under
Item 1 - Business in the Company's 1995 Form 10-K.
Net Interest Income
Net interest income for the three months ended March 31, 1996, increased
$3.9 million over the first quarter of 1995 to $91.2 million. On a tax-
equivalent basis, net interest income increased $3.7 million or 4 percent.
This increase was a result of a $15.8 million, or 9 percent, increase in
interest income on a tax-equivalent basis and a $12.1 million, or 14 percent,
increase in interest expense. The increase in interest income was due to an
increase in average earning assets of $775 million which more than offset a
decrease in the average yield on earning assets from 8.28 percent to 8.22
percent. The largest portion of the increase in earning assets occurred in the
average balances of loans and investment securities. This increase in the
average balance of loans and investment securities was funded by increases in
almost all categories of interest bearing liabilities, specifically a $423
million increase in savings deposits and a $122 million increase in FHLB and
other borrowings.
Interest expense for the three months ended March 31, 1996, increased by
$12.1 million, or 14 percent, from the prior year, due principally to a 9
percent increase in average interest bearing deposits and a 26 basis point
increase in the average rate paid on deposits. Additionally, the average
balances of federal funds purchased and securities sold under agreements to
repurchase increased 7 percent while the average balance of FHLB advances and
other borrowings increased by $122 million due to additional net FHLB advances
of $100 million in the last half of 1995.
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 three months of 1996, the net interest
margin, on a tax-equivalent basis, was 3.99 percent compared to 4.21 percent
for the same period in 1995. This 22 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 decreased
6 basis points, including a 6 basis point decrease in the yield on loans, the
rate paid on all categories of interest bearing deposits increased 26 basis
points. At the same time, the rate paid all other categories of interest
bearing liabilities decreased. During the first quarter of 1996, 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 three basis points during the three months ended March 31, 1995, the
use of interest rate contracts increased the Company's net interest margin by
only one basis point during the same period in 1996.
The table below details 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 three months ended
March 31, 1996, as compared to the same period in 1995 (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1996
--------------------------------------------
Change
1996 Attributed to
to --------------------------------
1995 Volume Rate Mix
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Interest income:
Loans $11,177 $10,949 $ 210 $ 18
Investment securities (21,977) (21,898) (208) 129
Investment securities available
for sale 25,223 17,174 2,835 5,214
Trading account securities 1,121 1,290 (70) (99)
Fed funds and resale agreements 306 526 (147) (73)
Time deposits in other banks (12) (15) 5 (2)
--------- --------- --------- ---------
Increase in interest income $15,838 $ 8,026 $ 2,625 $ 5,187
========= ========= ========= =========
Interest expense:
Deposits $10,599 $ 5,321 $ 4,875 $ 403
Fed funds purchased and repos 223 721 (465) (33)
Other short-term borrowings (362) (172) (210) 20
FHLB and other borrowings 1,690 2,141 (360) (91)
--------- --------- --------- ---------
Increase in interest expense $12,150 $ 8,011 $ 3,840 $ 299
========= ========= ========= =========
</TABLE>
Noninterest Income and Noninterest Expense
For the quarter ended March 31, 1996, noninterest income increased $15.8
million, or 60 percent, to $42.3 million. An increase of $6.6 million in
investment securities gains, along with a $2.2 million gain on branch sales,
represented the majority of the increase.
Service charges on deposit accounts increased $1.2 million, or 9 percent,
while trading account profits and commissions increased $2.5 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 to increased customer sales activity. It should be noted
that changes in the trading account profits 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 first three months of 1996, trading
account profits related specifically to derivative securities were
approximately $110,000, consisting of $8,000 in losses related to
collateralized mortgage obligations ("CMOs") held in the trading account offset
by $118,000 of profits on non-CMO derivative securities, specifically options
and interest rate swaps, caps, and floors.
The components of trading account assets at March 31, 1996, and December 31,
1995, are presented in the table on the following page:
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
-------------- -----------------
(in Thousands)
<S> <C> <C>
U.S. Treasury and Government agency $ 36,509 $ 54,318
State and political subdivisions 3,815 19,583
Mortgage-backed pass through securities 22,699 16,471
Other securities 1,489 396
Derivative securities:
Collateralized mortgage obligations 14,899 8,472
Interest rate floors and caps 1,910 2,676
Other options 29 -
----------- -----------
$ 81,350 $ 101,916
=========== ===========
</TABLE>
Noninterest expense decreased two percent during the first quarter of 1996
over the same period in 1995. During the first three months of 1996, salaries
increased by $2.5 million, or 8 percent, while employee benefits increased
$300,000, or 4 percent. The increase in salaries over 1995 levels was the
result of normal business growth and regular merit increases. Net occupancy
expense decreased 4 percent in the first quarter of 1996 due to decreased
depreciation expense and rent expense partially offset by decreased rental
income. FDIC insurance premiums decreased 84 percent in the first quarter of
1996 from the prior year. The decrease is due to a substantial decrease in the
insurance premium rates that became effective in June, 1995. During the first
three months of 1996, other noninterest expense declined 4 percent due to the
absence of legal and other professional services expenses associated with a
proxy contest initiated by three directors of the Company during the first
quarter of 1995.
During 1995 and 1996, Congress has considered various proposals for a one-
time special assessment to be charged on all SAIF deposits to fully capitalize
the SAIF at 1.25 percent of insured deposits. The proposed amount of the
special assessment has been as high as $0.85 per $100 of SAIF deposits.
Assuming that a special assessment were applied at the $0.85 rate based upon
SAIF insured deposits at March 31, 1996, the Company would incur additional
deposit insurance premium expense of approximately $8.8 million which would be
charged against current period income. The timing and amount of such an
assessment cannot be accurately predicted at this time.
Income Taxes
Income tax expense increased by $7.4 million, or 55 percent, during the
first quarter of 1996 compared to the same period in 1995. The effective tax
rate for the first three months of 1996 was 36 percent, up from the 35 percent
effective tax rate for the same period in 1995.
Provision and Allowance for Loan Losses
The provision for loan losses for the three months ended March 31, 1996,
increased to $3.3 million from the $1.3 million reported for the same period in
1995. This increase resulted from a $1.0 million increase in net charge-offs
during the first three months of 1996 as compared to the prior year period.
Net loan charge-offs expressed as an annualized percentage of average loans for
the first quarter of 1996 were 0.21 percent compared with 0.16 percent for the
first three months of 1995. 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 March 31, 1996, was $109 million,
relatively unchanged from December 31, 1995. The ratio of the allowance for
loan losses to loans outstanding was 1.69 percent at March 31, 1996, down from
1.70 percent at December 31, 1995.
Nonperforming Assets and Past Due Loans
Nonperforming assets, comprised of nonaccrual loans, renegotiated loans and
other real estate owned, totaled $32.0 million at March 31, 1996, compared to
$22.1 million at December 31, 1995, an increase of 45 percent, as nonaccrual
loans increased $10.0 million, or 85 percent. This increase was due primarily
to the placement of a single large loan on nonaccrual status during the first
quarter of 1996. At March 31, 1996, the allowance for loan losses as a
percentage of nonperforming loans was 478 percent as compared to 844 percent at
December 31, 1995. The allowance for loan losses as a percentage of
nonperforming loans and accruing loans ninety days or more past due decreased
from 607 percent at December 31, 1995, to 403 percent at March 31, 1996.
Nonperforming assets as a percentage of total loans and other real estate
owned increased to 0.50 percent at March 31, 1996, from 0.34 percent at
December 31, 1995. The amount recorded in other repossessed assets at March
31, 1996, was $421,000, down from $501,000 at December 31, 1995. Loans past
due ninety days or more but still accruing interest decreased 16 percent from
$5.0 million at December 31, 1995, to $4.2 million at March 31, 1996,
representing 0.07 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 March 31, 1996, were $10.2 billion, down 1 percent from
December 31, 1995. This decrease was due principally to a 17 percent decrease
in cash and due from banks and an 8 percent decrease in investment securities
held to maturity. Retained earnings remained the primary source of growth for
the Company's capital base.
Assets and Funding
At March 31, 1996, earning assets totaled $9.5 billion, relatively unchanged
from December 31, 1995. The mix of earning assets shifted moderately toward
loans in the first three months of 1996 with loans comprising 68 percent of
total earning assets at March 31, 1996, up from 67 percent at December 31,
1995, while the percentage of earning assets represented by total investment
securities remained unchanged at 29 percent. Trading account securities
decreased $21 million, or 20 percent, and federal funds sold and securities
purchased under agreements to resell increased $12 million, or 5 percent.
A $163 million increase in interest bearing deposits during the first three
months of 1996 was partially offset by an $83 million decrease in noninterest
bearing deposits. During the first three months of 1996, federal funds
purchased and securities sold under agreements to repurchase decreased $257
million, or 24 percent, while FHLB and other borrowings increased $25 million,
or 4 percent. At March 31, 1996, deposits accounted for 77 percent of the
Company's funding, up from 75 percent at year end.
Liquidity and Capital Resources
Net cash provided by operating activities totaled $70.9 million for the
three months ended March 31, 1996. For the first three months of 1996, net
cash used by investing activities of $70.1 million consisted of proceeds from
maturities of investment securities of $52.8 million, proceeds from maturities
of securities available for sale of $199.7 million, and proceeds from sales of
securities available for sale of $252.3 million with cash outflows of $465.2
million in purchases of investment securities available for sale, a $45.8
million increase in loans outstanding and $46.7 million paid in the sale of
branches. Net cash used by financing activities of $93.0 million consisted of
the payment of $12.4 million in common stock dividends as well as decreases in
securities sold under agreements to repurchase, federal funds purchased, and
other short-term borrowings funded in part by additional FHLB advances of $25.0
million as well as increases in deposits.
Total shareholders' equity at March 31, 1996, was 7.10 percent of total
assets compared to 6.90 percent at December 31, 1995. The increase since year-
end 1995 reflects the one percent increase in shareholders' equity in contrast
to the one percent decrease in total assets. The growth in shareholders'
equity consisted of earnings retained after payment of dividends on common
stock partially offset by the increase 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, 1995, to March 31,
1996, of $15.0 million has been reflected as a reduction of shareholders'
equity. During the first quarter of 1996, the Company issued restricted stock
to certain executive officers that vests ratably over the next five years. Due
to the fact that the restricted stock is considered issued and outstanding and
is reflected in common stock and surplus, shareholders' equity has been reduced
by the unvested portion of the stock granted, as required by generally accepted
accounting principles.
The leverage ratio, defined as period-end common equity adjusted for
goodwill divided by average quarterly assets adjusted for goodwill, was 6.97
percent at March 31, 1996, and 6.74 percent at December 31, 1995. 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 6.54 at December 31, 1995, to 6.78 at March 31,
1996.
Tier I capital and total qualifying capital (Tier I capital plus Tier II
capital), as defined by regulatory agencies, as of March 31, 1996, 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 March 31, 1996,
were 10.11 percent and 13.18 percent, respectively, compared to 9.90 percent
and 13.00 percent at December 31, 1995. 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>
Three Months Ended
March 31
-------------------------
1996 1995
---------- ----------
<S> <C> <C>
ALLOWANCE FOR LOAN LOSSES
Balance at beginning of period $108,727 $108,680
Add: Provision charged to earnings 3,345 1,316
Balance due to acquisition/(divestitures) (107) -
Deduct: Loans charged off 4,442 4,041
Loan recoveries (1,097) (1,709)
---------- ----------
Net charge-offs 3,345 2,332
---------- ----------
Balance at end of period $108,620 $107,664
========== ==========
Net charge-offs as a percentage of
average loans (annualized) 0.21% 0.16%
Recoveries as a percentage of charge-offs 24.70% 42.29%
</TABLE>
<TABLE>
<CAPTION>
March 31 December 31
1996 1995
---------- -----------
<S> <C> <C>
NONPERFORMING ASSETS
Nonaccrual loans $ 21,838 $ 11,808
Renegotiated loans 894 1,070
---------- ----------
Total nonperforming loans 22,732 12,878
Other real estate 9,314 9,175
---------- ----------
Total nonperforming assets $ 32,046 $ 22,053
========== ==========
Accruing loans ninety days past due $ 4,234 $ 5,027
Other repossessed assets $ 421 $ 501
Allowance for loan losses $ 108,620 $ 108,727
Allowance as a percentage of loans 1.69% 1.70%
Total nonperforming loans as a percentage
of loans and ORE 0.35% 0.20%
Total nonperforming assets as a percentage
of loans and ORE 0.50% 0.34%
Accruing loans ninety days past due as a
percentage of loans and ORE 0.07% 0.08%
Allowance for loan losses as a percentage of
nonperforming loans 477.83% 844.28%
Allowance for loan losses as a percentage of
nonperforming assets 338.95% 493.03%
</TABLE>
<PAGE>
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION Page
- --------------------------- ----
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) 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)(d) 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)(e) 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)
(10)(f) 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)(g) 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 17
(12) Ratio of Earnings to Fixed Charges 18
(27) Financial Data Schedule
(b) Reports on Form 8-K
On March 22, 1996, the Company filed a Form 8-K regarding the resignation of
Harry B. Brock, Jr. as a director of the Company, effective March 23, 1996.
<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.
May 13, 1996 /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 Months Ended March 31, 1996 and 1995
<CAPTION>
Three Months Ended
March 31
--------------------------
1996 1995
---------- ----------
(in Thousands Except Per Share Data)
<S> <C> <C>
PRIMARY:
Weighted average shares outstanding 38,596 38,303
Net effect of the assumed exercise
of stock options - based on the
treasury stock method using
average market price 268 230
---------- ----------
Total weighted average shares
and common stock equivalents
outstanding 38,864 38,533
========== ==========
Net income available
to common shareholders $ 36,043 $ 24,532
========== ==========
Net income per common share $ 0.93 $ 0.64
========== ==========
FULLY DILUTED:
Weighted average shares outstanding 38,596 38,303
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 268 241
---------- ----------
Total weighted average shares and
common stock equivalents
outstanding 38,864 38,544
========== ==========
Net income $ 36,043 $ 24,532
========== ==========
Net income per common share $ 0.93 $ 0.64
========== ==========
</TABLE>
<TABLE>
Exhibit (12)
Compass Bancshares, Inc. and Subsidiaries
Ratio of Earnings to Fixed Charges
Three Months Ended March 31, 1996 and 1995
<CAPTION>
Three Months Ended
March 31
--------------------------
1996 1995
---------- ----------
(in Thousands)
<S> <C> <C>
Pretax income $ 56,677 $ 37,803
Add fixed charges:
Interest on deposits 75,901 65,302
Interest on borrowings 22,108 20,557
Portion of rental expense
representing interest expense 860 864
---------- ----------
Total fixed charges 98,869 86,723
---------- ----------
Income before fixed charges $155,546 $124,526
========== ==========
Pretax income $ 56,677 $ 37,803
Add fixed charges (excluding
interest on deposits):
Interest on borrowings 22,108 20,557
Portion of rental expense
representing interest expense 860 864
---------- ----------
Total fixed charges 22,968 21,421
---------- ----------
Income before fixed charges
(excluding interest on deposits) $ 79,645 $ 59,224
========== ==========
RATIO OF EARNINGS TO FIXED CHARGES:
Including interest on deposits 1.57x 1.44x
Excluding interest on deposits 3.47x 2.76x
</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 THE PERIOD ENDED MARCH 31, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND
RELATED SUPPLEMENTAL SCHEDULES.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 441,887
<INT-BEARING-DEPOSITS> 1,005
<FED-FUNDS-SOLD> 267,524
<TRADING-ASSETS> 81,350
<INVESTMENTS-HELD-FOR-SALE> 2,026,013
<INVESTMENTS-CARRYING> 670,442
<INVESTMENTS-MARKET> 677,237
<LOANS> 6,409,831
<ALLOWANCE> 108,620
<TOTAL-ASSETS> 10,165,474
<DEPOSITS> 7,852,867
<SHORT-TERM> 904,041
<LIABILITIES-OTHER> 77,102
<LONG-TERM> 609,827
0
0
<COMMON> 77,335
<OTHER-SE> 644,302
<TOTAL-LIABILITIES-AND-EQUITY> 10,165,474
<INTEREST-LOAN> 138,738
<INTEREST-INVEST> 47,104
<INTEREST-OTHER> 3,402
<INTEREST-TOTAL> 189,244
<INTEREST-DEPOSIT> 75,901
<INTEREST-EXPENSE> 98,009
<INTEREST-INCOME-NET> 91,235
<LOAN-LOSSES> 3,345
<SECURITIES-GAINS> 6,667
<EXPENSE-OTHER> 73,533
<INCOME-PRETAX> 56,677
<INCOME-PRE-EXTRAORDINARY> 36,043
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 36,043
<EPS-PRIMARY> 0.93
<EPS-DILUTED> 0.93
<YIELD-ACTUAL> 3.99
<LOANS-NON> 21,838
<LOANS-PAST> 4,234
<LOANS-TROUBLED> 894
<LOANS-PROBLEM> 0<F1>
<ALLOWANCE-OPEN> 108,727
<CHARGE-OFFS> 4,442
<RECOVERIES> 1,097
<ALLOWANCE-CLOSE> 108,620
<ALLOWANCE-DOMESTIC> 108,620
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0<F1>
<FN>
<F1>Information is not required to be disclosed in interim filings with the
Commission.
</FN>
</TABLE>
