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, 1996 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, 1996
-------------------------- ----------------------------
Common Stock, $2 Par Value 38,846,445
The number of pages of this report is 20.
<PAGE>
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION Page
- ------------------------------------------------------------- ----
Item 1 Financial Statements
Consolidated Balance Sheets as of June 30, 1996
and December 31, 1995 3
Consolidated Statements of Income for the Three and
Six Months Ended June 30, 1996 and 1995 4
Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 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
<PAGE>
<TABLE>
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In Thousands)
(Unaudited)
<CAPTION>
June 30 December 31
1996 1995
------------- -------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 515,040 $ 554,576
Federal funds sold and securities purchased
under agreements to resell 70,211 269,994
Interest bearing deposits with other banks 807 1,202
Investment securities (market value of
$752,368 and $736,663 for 1996 and
1995, respectively) 752,094 722,632
Investment securities available for sale 2,169,412 2,088,039
Trading account securities 99,886 101,916
Loans, net of unearned income 6,842,835 6,484,348
Allowance for loan losses (115,404) (110,487)
------------ ------------
Net loans 6,727,431 6,373,861
Premises and equipment, net 230,479 222,757
Other assets 214,065 176,511
------------ ------------
Total assets $10,779,425 $10,511,488
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest bearing $ 1,503,330 $ 1,495,449
Interest bearing 7,211,514 6,448,120
------------ ------------
Total deposits 8,714,844 7,943,569
Federal funds purchased and securities
sold under agreements to repurchase 525,788 1,070,914
Other short-term borrowings 179,050 116,276
Accrued expenses and other liabilities 48,672 71,285
FHLB and other borrowings 609,801 586,840
------------ ------------
Total liabilities 10,078,155 9,788,884
Shareholders' equity:
Common stock of $2 par value:
Authorized--100,000,000 shares;
Issued--39,646,459 shares in 1996 and
39,450,318 shares in 1995 79,293 78,901
Surplus 54,597 49,654
Loans to finance stock purchases (6,110) (5,628)
Unearned restricted stock (1,210) -
Net unrealized holding gain (loss) on
available-for-sale securities (8,973) 11,872
Treasury stock (46,769) -
Retained earnings 630,442 587,805
------------ ------------
Total shareholders' equity 701,270 722,604
------------ ------------
Total liabilities and shareholders'
equity $10,779,425 $10,511,488
============ ============
</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
----------------------- ----------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $146,349 $136,340 $287,544 $265,779
Interest and dividends on
investment securities 13,114 34,270 25,731 69,516
Interest on investment
securities available
for sale 34,738 9,906 70,062 19,316
Interest on trading account
securities 1,597 1,300 3,610 2,200
Interest on federal funds
sold and securities
purchased under agreements
to resell 1,646 1,068 3,094 2,134
Interest on interest bearing
deposits with other banks 13 27 31 57
---------- ---------- ---------- ----------
Total interest income 197,457 182,911 390,072 359,002
INTEREST EXPENSE:
Interest on deposits 79,978 71,551 156,648 137,501
Interest on federal funds
purchased and securities
sold under agreements to
repurchase 8,264 10,911 18,863 21,317
Interest on other short
-term borrowings 2,612 2,925 4,128 4,811
Interest on FHLB and other
borrowings 10,224 8,720 20,485 17,307
---------- ---------- ---------- ----------
Total interest expense 101,078 94,107 200,124 180,936
---------- ---------- ---------- ----------
Net interest income 96,379 88,804 189,948 178,066
Provision for loan losses 4,886 2,286 8,315 3,758
---------- ---------- ---------- ----------
Net interest income
after provision for
loan losses 91,493 86,518 181,633 174,308
NONINTEREST INCOME:
Service charges on deposit
accounts 14,499 13,644 28,269 26,275
Trust fees 3,869 4,024 8,261 7,769
Trading account profits and
commissions 2,878 2,558 7,005 4,177
Investment securities
gains (losses), net (28) 2,842 6,660 2,863
Other 12,766 10,027 26,737 19,060
---------- ---------- ---------- ----------
Total noninterest income 33,984 33,095 76,932 60,144
NONINTEREST EXPENSE:
Salaries and benefits 42,790 38,205 83,461 76,190
Net occupancy expense 6,049 5,054 12,009 11,267
Equipment expense 5,233 5,581 10,667 10,544
FDIC insurance premium 955 4,051 1,608 8,102
Other 23,019 22,600 45,676 46,002
---------- ---------- ---------- ----------
Total noninterest expense 78,046 75,491 153,421 152,105
---------- ---------- ---------- ----------
Net income before income
tax expense 47,431 44,122 105,144 82,347
Income tax expense 16,782 15,693 37,742 29,082
---------- ---------- ---------- ----------
NET INCOME $ 30,649 $ 28,429 $ 67,402 $ 53,265
========== ========== ========== ==========
NET INCOME PER COMMON SHARE $0.79 $0.72 $1.71 $1.35
Weighted average shares
outstanding 39,014 39,603 39,409 39,528
Dividends per common share $0.32 $0.28 $0.64 $0.56
</TABLE>
<PAGE>
<TABLE>
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
<CAPTION>
Six Months Ended
June 30
--------------------------
1996 1995
---------- ----------
<S> <C> <C>
Operating Activities:
Net income $ 67,402 $ 53,265
Adjustments to reconcile net income to
cash provided by operations:
Depreciation and amortization 17,106 14,868
Accretion of discount and loan fees (7,866) (8,516)
Provision for loan losses 8,315 3,758
Net change in trading account securities 2,030 (14,438)
Net change in mortgage loans available
for sale (1,298) 10,026
Gain on sale of investment securities (6,660) (2,863)
(Gain) loss on sale of premises and equipment (112) 33
Gain on sale of other real estate owned (52) (207)
Provision for losses on other real
estate owned 102 301
Gain on sale of branches (2,300) -
Decrease in interest receivable 3,035 2,720
(Increase) decrease in other assets 3,074 (32,936)
Increase (decrease) in interest payable (4,068) 9,908
Decrease in taxes payable (8,752) (3,737)
Decrease in other payables (101) (4,816)
---------- ----------
Net cash provided by operating activities 69,855 27,366
Investing Activities:
Proceeds from maturities/calls of investment
securities 110,048 157,602
Purchases of investment securities (12,120) (5,608)
Proceeds from sales of securities
available for sale 439,419 370,954
Proceeds from maturities/calls of
securities available for sale 312,913 55,122
Purchases of securities available for sale (876,652) (542,365)
Net (increase) decrease in federal funds
sold and securities purchased
under agreements to resell 249,148 (23,336)
Net increase in loan portfolio (120,102) (365,608)
Acquisitions, net of cash acquired (73,585) -
Sale of branches (46,524) -
Purchases of premises and equipment (12,561) (15,078)
Proceeds from sales of premises
and equipment 511 503
Net decrease in interest bearing
deposits with other banks 1,029 808
Proceeds from sales of other
real estate owned 1,542 2,319
---------- ----------
Net cash used by investing activities (26,934) (364,687)
</TABLE>
<PAGE>
<TABLE>
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
<CAPTION>
Six Months Ended
June 30
---------------------------
1996 1995
----------- -----------
<S> <C> <C>
Financing Activities:
Net increase (decrease) in demand deposits,
NOW accounts and savings accounts $ 263,288 $(197,489)
Net increase in time deposits 185,142 172,182
Net increase (decrease) in federal funds
purchased (482,108) 358,823
Net decrease in securities sold
under agreements to repurchase (64,097) (128,592)
Net increase in short-term borrowings 57,715 150,058
Issuance of FHLB advances and
other borrowings 25,000 -
Repayment of long-term debt (1,297) (3,063)
Purchase of treasury shares (45,590) -
Common dividends paid (24,628) (21,326)
Repayment of loans to finance stock
purchases 1,230 474
Proceeds from exercise of stock options 2,888 2,218
----------- -----------
Net cash provided (used) by financing
activities (82,457) 333,285
----------- -----------
Net decrease in cash and due from banks (39,536) (4,036)
Cash and due from banks at beginning of period 554,576 509,097
----------- -----------
Cash and due from banks at end of period $ 515,040 $ 505,061
=========== ===========
Schedule of noncash investing and
financing activities:
Transfers of loans to other real estate owned $ 2,083 $ 1,920
Loans to facilitate the sale of
other real estate owned 1,213 989
Loans to finance stock purchases 1,712 1,611
Tax benefit realized upon exercise
of stock options 56 117
Issuance of restricted stock 1,296 -
Change in unrealized gain/loss on available
for sale securities (33,171) 13,844
Transfer of securities available for
sale to held-to-maturity securities 115,987 -
Conversion of debentures 790 -
Repurchase liability associated with
treasury stock transaction 1,427 -
Issuance of treasury stock upon exercise
of stock options 248 -
Divestiture of branches:
Liabilities sold $ 79,378
Assets sold 30,554
----------
Net liabilities sold $ 48,824
==========
Acquisitions:
Assets acquired $483,460
Liabilities assumed 409,875
----------
Cash paid $ 73,585
==========
</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 accordingly all prior period information has
been restated.
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 May 21, 1996, the Company completed the purchase of Peoples Bancshares,
Inc. ("Peoples"), of Belton, Texas, and its bank subsidiary, Peoples National
Bank. At the date of closing, Peoples had assets of $136 million and deposits
of $126 million. The transaction was accounted for under the purchase method
of accounting.
On July 16, 1996, the Company completed the acquisition of Royall Financial
Corporation ("Royall") of Palestine, Texas, and its bank subsidiary, Royall
National Bank of Palestine, with the issuance of 549,986 shares of the
Company's common stock. At the date of closing, Royall had assets of $109
million and equity of $11 million. The transaction was accounted for under the
pooling-of-interests method of accounting and all prior period information will
be restated in the third quarter of 1996.
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 June 30, 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 June 30,
1996, Texas American had assets of $61 million and equity of $5 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 June 30, 1996, ProBank had assets of
$62 million and equity of $3 million. It is anticipated that the transaction
will close during the third quarter of 1996 and will be accounted for as a
purchase.
On August 5, 1996, the Company signed a definitive agreement to acquire
Enterprise National Bank ("Enterprise") of Jacksonville, Florida. At June 30,
1996, Enterprise had assets of $161 million and equity of $12 million. It is
anticipated that the transaction will close in the fourth quarter of 1996 and
will be accounted for under the pooling-of-interests method of accounting.
NOTE 3 - Impaired Loans
At June 30, 1996, the recorded investment in loans that are considered
impaired under generally accepted accounting principles was $28.2 million, of
which $8.4 million were on nonaccrual status. Included in this amount is $27.9
million of impaired loans for which the related allowance for loan losses was
$6.6 million and $280,000 of loans that have no related allowance for loan
losses. At June 30, 1995, impaired loans totaled $45.7 million.
NOTE 4 - Stock Repurchase
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.
NOTE 5 - Recently Issued Accounting Standards
In June 1996, the Financial Accounting Standards Board issued Financial
Accounting Statement No. 125, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities, ("FAS125"). FAS125
provides new accounting and reporting standards for sales, securitization, and
servicing of receivables and other financial assets and extinguishments of
liabilities establishing new ground rules for determining whether a transfer
constitutes a sale and the determination of the resulting gain or loss. The
provisions of FAS125 are to be applied to transactions occurring after December
31, 1996, even for transfers of assets pursuant to securitization transactions
that previously were established. The Company does not believe that the
adoption of FAS125 will have a material impact on its financial position or its
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, 1996, increased 8 percent to $30.6
million while net income for the first six months of 1996 increased 27 percent
to $67.4 million from the comparable prior year periods. Net income per common
share for the second quarter increased 10 percent to $0.79 compared to the same
period in 1995 while net income per common share for the first six months of
1996 increased 27 percent to $1.71. Net interest income increased by $7.6
million, or 9 percent, during the second quarter of 1996 and $11.9 million, or
7 percent, during the first six months of the year. Noninterest income and
noninterest expense increased 3 percent in the second quarter of 1996 while for
the first six months of 1996, noninterest income and noninterest expense
increased 28 percent and 1 percent, respectively.
In February, 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. In April,
1996, the Company completed the acquisition of Equitable BankShares, Inc.
("Equitable"), of Dallas, Texas, and its bank subsidiary, Equitable Bank, for
954,962 shares of the Company's common stock. The acquisition of Flower Mound
and Equitable were accounted for under the pooling-of-interests method of
accounting and accordingly the financial statements have been restated for all
periods to reflect the acquisitions. 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 June 30, 1996, increased $7.6
million over the second quarter of 1995 to $96.4 million. On a tax-equivalent
basis, net interest income increased $7.1 million, or 8 percent. This increase
was a result of a $14.0 million, or 8 percent, increase in interest income on a
tax-equivalent basis and a $7.0 million, or 7 percent, increase in interest
expense. The increase in interest income was due to an increase in average
earning assets of $1.0 billion which more than offset a decrease in the average
yield on earning assets from 8.36 percent to 8.10 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 most categories of interest
bearing liabilities, specifically a $630 million increase in savings deposits
and a $123 million increase in FHLB and other borrowings.
Interest expense for the three months ended June 30, 1996, increased by $7.0
million, or 7 percent, from the prior year, due principally to a 15 percent
increase in average interest bearing deposits partially offset by a 12 basis
point decrease in the average rate paid on deposits. Additionally, the average
balance of FHLB advances and other borrowings increased 25 percent due to
additional net FHLB advances of $175 million in the last half of 1995 while the
average balances of federal funds purchased and securities sold under
agreements to repurchase decreased by $105 million.
For the six months ended June 30, 1996, net interest income increased $11.9
million, or 7 percent, over the prior year period to $189.9 million. On a tax-
equivalent basis, net interest income increased $11.2 million, or 6 percent. A
decrease in the average yield on earning assets from 8.32 percent to 8.16
percent was more than offset by an increase in average earning assets of $895
million resulting in a $30.4 million, or 8 percent, increase in interest
income. As noted above, growth in the average balance of deposits and FHLB and
other borrowings funded the increase in loans and investment securities.
Interest expense for the six months ended June 30, 1996, increased by $19.2
million, or 11 percent, from the prior year as the average balance of interest
bearing liabilities, primarily interest bearing deposits, increased by 11
percent while the average rate paid on liabilities decreased 2 basis points.
The decrease in the average rate paid on interest bearing liabilities resulted
from a 7 basis point increase in the rate paid on deposits which was more than
offset by a 35 basis point decrease in the rate paid on all other categories of
borrowings. The average balances of federal funds purchased and securities
sold under agreements to repurchase decreased 3 percent while the average
balance of FHLB advances and other borrowings increased by 25 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 1996, the net interest
margin, on a tax-equivalent basis, was 3.99 percent compared to 4.16 percent
for the same period in 1995. This 17 basis point decrease resulted from the
changes in rates and volumes of earning assets and the corresponding funding
sources noted previously. While the rate paid on interest bearing liabilities
declined 2 basis points, the yield on interest earning assets decreased 16
basis points, including a 13 basis point decrease in the yield on loans. The
impact of this decline on net interest margin was partially mitigated by a five
percent increase in the average balance of noninterest bearing demand deposits.
During the first six months 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 2 basis points
during the six months ended June 30, 1995, the use of interest rate contracts
increased the Company's net interest margin by only 1 basis point during the
same period in 1996.
For the second quarter of 1996, the net interest margin, on a tax-equivalent
basis, was 3.97 percent compared to 4.09 percent for the same period in 1995.
A decrease in the average rate earned on interest earning assets from 8.36
percent to 8.10 percent was the major contributor to the decline in the net
interest margin. The impact of the 26 basis point decrease in the average rate
earned on interest earning assets was partially offset by a 20 basis point
decrease in rate paid on interest bearing liabilities from 5.05 percent to 4.85
percent. During the second quarter of 1996, 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 three basis points as
compared to a positive impact of two basis points for the same period in 1995.
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, 1996, as compared to comparable periods of 1995 (in
thousands):
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1996
---------------------------------------------
Change
1996 Attributed to
to ---------------------------------
1995 Volume Rate Mix
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Interest income:
Loans $21,206 $24,480 $(2,999) $ (275)
Investment securities (44,013) (43,286) (1,856) 1,129
Investment securities available
for sale 50,805 35,301 5,484 10,020
Trading account securities 1,427 1,651 (129) (95)
Fed funds and resale agreements 960 1,557 (345) (252)
Time deposits in other banks (26) (29) 5 (2)
--------- --------- --------- ---------
Increase in interest income $30,359 $19,674 $ 160 $10,525
========= ========= ========= =========
Interest expense:
Deposits $19,147 $14,634 $ 3,904 $ 609
Fed funds purchased and repos (2,455) (726) (1,790) 61
Other short-term borrowings (683) (261) (446) 24
FHLB and other borrowings 3,179 4,326 (917) (230)
--------- --------- --------- ---------
Increase in interest expense $19,188 $17,973 $ 751 $ 464
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
June 30, 1996
---------------------------------------------
Change
1996 Attributed to
to ---------------------------------
1995 Volume Rate Mix
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Interest income:
Loans $ 9,581 $13,223 $(3,321) $ (321)
Investment securities (21,256) (20,857) (984) 585
Investment securities available
for sale 24,853 18,672 2,143 4,038
Trading account securities 306 366 (47) (13)
Fed funds and resale agreements 578 946 (195) (173)
Time deposits in other banks (14) (14) (1) 1
--------- --------- --------- ---------
Increase in interest income $14,048 $12,336 $(2,405) $ 4,117
========= ========= ========= =========
Interest expense:
Deposits $ 8,427 $ 9,336 $ (998) $ 89
Fed funds purchased and repos (2,647) (1,485) (1,345) 183
Other short-term borrowings (313) (76) (243) 6
FHLB and other borrowings 1,504 2,193 (550) (139)
--------- --------- --------- ---------
Increase in interest expense $ 6,971 $ 9,968 $(3,136) $ 139
========= ========= ========= =========
</TABLE>
Noninterest Income and Noninterest Expense
For the six months ended June 30, 1996, noninterest income increased $16.8
million, or 28 percent, to $76.9 million. An increase of $3.8 million in
investment securities gains, along with a $2.3 million gain on branch sales in
the first quarter of the year, represented the majority of the increase.
Noninterest income for the second quarter of 1996 increased $900,000, or 3
percent, over the same period in 1995. Service charges on deposit accounts
increased $900,000, or 6 percent, while trading account profits and commissions
increased $300,000 during the second quarter of 1996. During the first six
months of the year, service charges on deposit accounts increased $2.0 million,
or 8 percent, and trading account profits and commissions increased $500,000.
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 in the first six months of 1996 was due to increased customer sales
activity in the first quarter which declined during the second quarter of the
year. 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
six months of 1996, trading account profits related specifically to derivative
securities were approximately $115,000, consisting of $15,000 of losses related
to collateralized mortgage obligations ("CMOs") held in the trading account
offset by $130,000 of profits on non-CMO derivative securities, specifically
options, futures, and interest rate swaps, caps, and floors. Other noninterest
income increased 27 percent during the second quarter of 1996 and 40 percent
during the first six months of the year due to increased credit card fee income
and increased annuity and mutual fund sales income.
The components of trading account assets at June 30, 1996, and December 31,
1995, are presented in the following table.
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
------------- -----------------
(in Thousands)
<S> <C> <C>
U.S. Treasury and Government agency $ 48,230 $ 54,318
State and political subdivisions 8,279 19,583
Mortgage-backed pass through securities 32,262 16,471
Other securities 1,526 396
Derivative securities:
Collateralized mortgage obligations 8,905 8,472
Interest rate floors and caps 639 2,676
Other options 45 -
----------- -----------
$ 99,886 $ 101,916
=========== ===========
</TABLE>
Noninterest expense increased $2.6 million, or 3 percent, during the second
quarter of 1996 over the same period in 1995. For the six months ended June
30, 1996, noninterest expense increased by 1 percent to $153.4 million.
Salaries increased $3.3 million, or 10 percent, for the second quarter while
employee benefits increased $1.3 million, or 22 percent. During the first six
months of 1996, salaries increased by $5.7 million, or 9 percent, while
employee benefits increased $1.6 million, or 13 percent. The increase in
salaries over 1995 levels was the result of business combinations completed
during the second quarter as well as 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 acquisitions as well as
increased ESOP expense. Net occupancy expense increased 20 percent in the
second quarter of 1996 and 7 percent in the first six months of the year due to
decreased rental income related to the Company's headquarters and additional
depreciation expense. FDIC insurance premiums decreased 76 percent in the
second quarter and 80 percent in the first six months 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 six months of 1996, other
noninterest expense decreased $300,000, or 1 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.
For the second quarter of the year, noninterest expense increased 2 percent to
$23.0 million.
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 June 30, 1996, the Company would incur additional
deposit insurance premium expense of approximately $8.4 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 $1.1 million, or 7 percent, during the
second quarter of 1996 compared to the same period in 1995 and increased $8.7
million, or 30 percent, during the first six months of the year. The effective
tax rate for the first six 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 June 30, 1996,
increased to $4.9 million from the $2.3 million reported for the same period in
1995. For the six months ended June 30, 1996, the provision for loan losses
increased $4.6 million. This increase resulted from a $3.5 million increase
in net charge-offs during the first six 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 two quarters of 1996 were 0.25 percent compared
with 0.16 percent for the first six 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 June
30, 1996, was $115 million compared to $110 million at December 31, 1995. The
ratio of the allowance for loan losses to loans outstanding was 1.69 percent at
June 30, 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 $30.3 million at June 30, 1996, compared to
$23.1 million at December 31, 1995, an increase of 31 percent, as nonaccrual
loans increased $7.1 million, or 57 percent. This increase was due in part to
nonperforming assets acquired in acquisitions completed during the second
quarter of 1996. At June 30, 1996, the allowance for loan losses as a
percentage of nonperforming loans was 565 percent as compared to 816 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 591 percent at December 31, 1995, to 455 percent at June 30, 1996.
Nonperforming assets as a percentage of total loans and other real estate
owned increased to 0.30 percent at June 30, 1996, from 0.21 percent at December
31, 1995. The amount recorded in other repossessed assets at June 30, 1996,
was $400,000, down from $500,000 at December 31, 1995. Loans past due ninety
days or more but still accruing interest decreased 4 percent from $5.2 million
at December 31, 1995, to $4.9 million at June 30, 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 June 30, 1996, were $10.8 billion, up 3 percent from
December 31, 1995. This increase was due principally to a 6 percent increase
in loans. Retained earnings remained the primary source of growth for the
Company's capital base offset by the repurchase of $47 million of treasury
stock to be used in the acquisition of CFB Bancorp, Inc. which is expected to
close in the third quarter.
Assets and Funding
At June 30, 1996, earning assets totaled $9.9 billion, up from $9.7 billion
at December 31, 1995, an increase of 3 percent. The mix of earning assets
shifted moderately toward loans in the first six months of 1996 with loans
comprising 69 percent of total earning assets at June 30, 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.
Federal funds sold and securities purchased under agreements to resell
decreased $200 million, or 74 percent.
A $763 million increase in interest bearing deposits during the first six
months of 1996 was partially offset by a $545 million decrease in federal
funds purchased and securities sold under agreements to repurchase while other
short-term borrowings increased $63 million. At June 30, 1996, deposits
accounted for 81 percent of the Company's funding, up from 76 percent at year
end.
Liquidity and Capital Resources
Net cash provided by operating activities totaled $70.0 million for the six
months ended June 30, 1996. For the first six months of 1996, net cash used by
investing activities of $26.9 million consisted of proceeds from maturities of
investment securities of $110.0 million, proceeds from maturities of securities
available for sale of $312.9 million, proceeds from sales of securities
available for sale of $439.4 million and a decrease in federal funds sold and
securities purchased under agreements to resell of $249.1 million. Cash
outflows consisted of $876.7 million in purchases of investment securities
available for sale, a $120.1 million increase in loans outstanding, $73.6
million paid in the acquisition of banks and $46.5 million paid in the sale of
branches. Net cash used by financing activities of $82.5 million consisted of
the payment of $24.6 million in common stock dividends and the repurchase of
treasury stock as well as decreases in securities sold under agreements to
repurchase and federal funds purchased, funded in part by additional FHLB
advances of $25.0 million as well as increases in deposits and other short-term
borrowings.
Total shareholders' equity at June 30, 1996, was 6.51 percent of total
assets compared to 6.87 percent at December 31, 1995, due to the repurchase of
treasury stock and the increase in the net unrealized holding loss on available
- -for-sale securities partially offset by earnings retained after payment of
dividends on common stock. The change in the unrealized holding loss in the
Company's available-for-sale portfolio from December 31, 1995, to June 30,
1996, of $20.8 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 6.04
percent at June 30, 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, decreased from 6.55 percent at December 31, 1995 to 5.86
percent at June 30, 1996.
Tier I capital and total qualifying capital (Tier I capital plus Tier II
capital), as defined by regulatory agencies, as of June 30, 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 June 30, 1996,
were 8.58 percent and 11.51 percent, respectively, compared to 9.90 percent
and 13.00 percent at December 31, 1995. The decrease in all capital ratios
from December 31, 1995 to June 30, 1996 was due to the $47 million in treasury
stock repurchased by the Company in April, 1996, and the additional goodwill
and other intangible assets recorded in connection with the acquisition of
Peoples Bancshares, Inc. and Post Oak Bank. 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
----------------------------
1996 1995
---------- ----------
<S> <C> <C>
ALLOWANCE FOR LOAN LOSSES
Balance at beginning of period $ 110,487 $ 110,163
Add: Provision charged to earnings 8,315 3,758
Balance due to acquisition/(divestitures) 4,917 -
Deduct: Loans charged off 10,959 7,874
Loan recoveries (2,644) (3,108)
---------- ----------
Net charge-offs 8,315 4,766
---------- ----------
Balance at end of period $ 115,404 $ 109,155
========== ==========
Net charge-offs as a percentage of
average loans (annualized) 0.25% 0.16%
Recoveries as a percentage of charge-offs 24.13% 39.47%
</TABLE>
<TABLE>
<CAPTION>
June 30 December 31
1996 1995
---------- ----------
<S> <C> <C>
NONPERFORMING ASSETS
Nonaccrual loans $ 19,555 $ 12,463
Renegotiated loans 861 1,070
---------- ----------
Total nonperforming loans 20,416 13,533
Other real estate 9,895 9,550
---------- ----------
Total nonperforming assets $ 30,311 $ 23,083
========== ==========
Accruing loans ninety days past due $ 4,944 $ 5,163
Other repossessed assets $ 409 $ 501
Allowance for loan losses $ 115,404 $ 110,487
Allowance as a percentage of loans 1.69% 1.70%
Total nonperforming loans as a percentage
of loans and ORE 0.30% 0.21%
Total nonperforming assets as a percentage
of loans and ORE 0.44% 0.36%
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 565.26% 816.43%
Allowance for loan losses as a percentage
of nonperforming assets 380.73% 478.65%
</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 19
(12) Ratio of Earnings to Fixed Charges 20
(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 12, 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 and Six Months Ended June 30, 1996 and 1995
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
----------------------- ----------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
(in Thousands Except Per Share Data)
<S> <C> <C> <C> <C>
PRIMARY:
Weighted average shares
outstanding 38,701 39,364 39,126 39,311
Net effect of the assumed
exercise of stock options -
based on the treasury stock
method using average market
price 313 239 283 217
---------- ---------- ---------- ----------
Total weighted average shares
and common stock equivalents
outstanding 39,014 39,603 39,409 39,528
========== ========== ========== ==========
Net income available
to common shareholders $ 30,649 $ 28,429 $ 67,402 $ 53,265
========== ========== ========== ==========
Net income per common share $ 0.79 $ 0.72 $ 1.71 $ 1.35
========== ========== ========== ==========
FULLY DILUTED:
Weighted average shares
outstanding 38,701 39,364 39,126 39,311
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 313 282 283 282
---------- ---------- ---------- ----------
Total weighted average shares
and common stock equivalents
outstanding 39,014 39,646 39,409 39,593
========== ========== ========== ==========
Net income $ 30,649 $ 28,429 $ 67,402 $ 53,265
========== ========== ========== ==========
Net income per common share $ 0.79 $ 0.72 $ 1.71 $ 1.35
========== ========== ========== ==========
</TABLE>
<TABLE>
Exhibit (12)
Compass Bancshares, Inc. and Subsidiaries
Ratio of Earnings to Fixed Charges
Six Months Ended June 30, 1996 and 1995
<CAPTION>
Six Months Ended
June 30
-------------------------
1996 1995
---------- ----------
(in Thousands)
<S> <C> <C>
Pretax income $ 105,144 $ 82,347
Add fixed charges:
Interest on deposits 156,648 137,501
Interest on borrowings 43,476 43,435
Portion of rental expense
representing interest expense 1,768 1,746
---------- ----------
Total fixed charges 201,892 182,682
---------- ----------
Income before fixed charges $ 307,036 $ 265,029
========== ==========
Pretax income $ 105,144 $ 82,347
Add fixed charges (excluding
interest on deposits):
Interest on borrowings 43,476 43,435
Portion of rental expense
representing interest expense 1,768 1,746
---------- ----------
Total fixed charges 45,244 45,181
---------- ----------
Income before fixed charges
(excluding interest on deposits) $ 150,388 $ 127,528
========== ==========
RATIO OF EARNINGS TO FIXED CHARGES:
Including interest on deposits 1.52x 1.45x
Excluding interest on deposits 3.32x 2.82x
</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,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS AND RELATED SUPPLEMENTAL SCHEDULES.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 515,040
<INT-BEARING-DEPOSITS> 807
<FED-FUNDS-SOLD> 70,211
<TRADING-ASSETS> 99,886
<INVESTMENTS-HELD-FOR-SALE> 2,169,412
<INVESTMENTS-CARRYING> 752,094
<INVESTMENTS-MARKET> 752,368
<LOANS> 6,842,835
<ALLOWANCE> 115,404
<TOTAL-ASSETS> 10,779,425
<DEPOSITS> 8,714,844
<SHORT-TERM> 704,838
<LIABILITIES-OTHER> 48,672
<LONG-TERM> 609,801
0
0
<COMMON> 79,293
<OTHER-SE> 621,977
<TOTAL-LIABILITIES-AND-EQUITY> 10,779,425
<INTEREST-LOAN> 287,544
<INTEREST-INVEST> 95,793
<INTEREST-OTHER> 6,735
<INTEREST-TOTAL> 390,072
<INTEREST-DEPOSIT> 156,648
<INTEREST-EXPENSE> 200,124
<INTEREST-INCOME-NET> 189,948
<LOAN-LOSSES> 8,315
<SECURITIES-GAINS> 6,660
<EXPENSE-OTHER> 153,421
<INCOME-PRETAX> 105,144
<INCOME-PRE-EXTRAORDINARY> 67,402
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 67,402
<EPS-PRIMARY> 1.71
<EPS-DILUTED> 1.71
<YIELD-ACTUAL> 3.99
<LOANS-NON> 19,555
<LOANS-PAST> 4,944
<LOANS-TROUBLED> 861
<LOANS-PROBLEM> 0<F1>
<ALLOWANCE-OPEN> 110,487
<CHARGE-OFFS> 10,959
<RECOVERIES> 2,644
<ALLOWANCE-CLOSE> 115,404
<ALLOWANCE-DOMESTIC> 115,404
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0<F1>
<FN>
<F1>Information is not required to be disclosed in interim filings with the
Commission.
</FN>
</TABLE>
