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 September 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 October 31, 1996
-------------------------- -------------------------------
Common Stock, $2 Par Value 40,509,654
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 September 30, 1996 and
December 31, 1995 3
Consolidated Statements of Income for the Three and Nine Months
Ended September 30, 1996 and 1995 4
Consolidated Statements of Cash Flows for the Nine Months Ended
September 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>
September 30 December 31
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 484,125 $ 565,188
Federal funds sold and securities purchased
under agreements to resell 94,949 274,347
Interest bearing deposits with other banks 809 1,697
Investment securities (market value of
$1,165,566 and $737,163 for 1996 and
1995, respectively) 1,162,207 723,132
Investment securities available for sale 2,056,505 2,142,776
Trading account securities 80,831 101,916
Loans, net of unearned income 7,274,900 6,572,772
Allowance for loan losses (118,273) (111,235)
------------ ------------
Net loans 7,156,627 6,461,537
Premises and equipment, net 244,009 227,928
Other assets 325,317 179,848
------------ ------------
Total assets $11,605,379 $10,678,369
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest bearing $ 1,632,254 $ 1,535,632
Interest bearing 7,486,870 6,555,186
------------ ------------
Total deposits 9,119,124 8,090,818
Federal funds purchased and securities
sold under agreements to repurchase 660,852 1,071,699
Other short-term borrowings 246,692 116,276
Accrued expenses and other liabilities 199,528 72,069
FHLB and other borrowings 602,373 590,044
------------ ------------
Total liabilities 10,828,569 9,940,906
Shareholders' equity:
Common stock of $2 par value:
Authorized--100,000,000 shares;
Issued--40,509,654 shares in 1996 and
40,325,281 shares in 1995 81,019 80,651
Surplus 57,768 54,698
Loans to finance stock purchases (5,006) (5,628)
Unearned restricted stock (1,145) -
Net unrealized holding gain (loss) on
available-for-sale securities (8,117) 11,978
Retained earnings 652,291 595,764
------------ ------------
Total shareholders' equity 776,810 737,463
------------ ------------
Total liabilities and shareholders'
equity $11,605,379 $10,678,369
============ ============
</TABLE>
<PAGE>
<TABLE>
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(In Thousands Except Per Share Data)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
----------------------- ----------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $153,289 $143,130 $445,384 $412,664
Interest and dividends on
investment securities 16,208 32,861 41,943 103,722
Interest on investment
securities available
for sale 35,354 14,977 106,942 34,649
Interest on trading account
securities 1,356 1,270 4,966 3,470
Interest on federal funds
sold and securities
purchased under agreements
to resell 1,924 879 5,181 3,145
Interest on interest bearing
deposits with other banks 13 34 52 137
---------- ---------- ---------- ----------
Total interest income 208,144 193,151 604,468 557,787
INTEREST EXPENSE:
Interest on deposits 86,078 73,869 244,512 212,953
Interest on federal funds
purchased and securities
sold under agreements to
repurchase 7,789 12,528 26,678 33,860
Interest on other short
-term borrowings 2,612 3,704 6,735 8,517
Interest on FHLB and other
borrowings 9,895 10,227 30,486 27,643
---------- ---------- ---------- ----------
Total interest expense 106,374 100,328 308,411 282,973
---------- ---------- ---------- ----------
Net interest income 101,770 92,823 296,057 274,814
Provision for loan losses 4,433 4,690 12,935 8,478
---------- ---------- ---------- ----------
Net interest income
after provision for
loan losses 97,337 88,133 283,122 266,336
NONINTEREST INCOME:
Service charges on deposit
accounts 15,363 14,352 44,504 41,480
Trust fees 4,004 4,102 12,275 11,877
Trading account profits and
commissions 2,820 3,398 9,825 7,575
Investment securities
gains (losses), net 1,471 (109) 8,131 2,754
Other 13,542 10,582 40,490 29,792
---------- ---------- ---------- ----------
Total noninterest income 37,200 32,325 115,225 93,478
NONINTEREST EXPENSE:
Salaries and benefits 46,315 38,705 131,326 116,387
Net occupancy expense 6,492 5,686 18,787 17,234
Equipment expense 5,680 5,697 16,617 16,494
FDIC insurance premium 8,405 317 10,015 8,568
Other 27,021 22,763 73,870 69,893
---------- ---------- ---------- ----------
Total noninterest expense 93,913 73,168 250,615 228,576
---------- ---------- ---------- ----------
Net income before income
tax expense 40,624 47,290 147,732 131,238
Income tax expense 14,815 16,949 53,252 46,561
---------- ---------- ---------- ----------
NET INCOME $ 25,809 $ 30,341 $ 94,480 $ 84,677
========== ========== ========== ==========
NET INCOME PER COMMON SHARE $0.65 $0.75 $2.35 $2.09
Weighted average shares
outstanding 39,813 40,613 40,195 40,474
Dividends per common share $0.32 $0.28 $0.96 $0.84
</TABLE>
<PAGE>
<TABLE>
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
<CAPTION>
Nine Months Ended
September 30
-----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Operating Activities:
Net income $ 94,480 $ 84,677
Adjustments to reconcile net income to
cash provided by operations:
Depreciation and amortization 25,570 23,590
Accretion of discount and loan fees (10,088) (12,606)
Provision for loan losses 12,935 8,478
Net change in trading account securities 21,085 (27,811)
Net change in mortgage loans available
for sale 6,328 7,898
Gain on sale of investment securities (8,131) (2,754)
Gain on sale of premises and equipment (162) (66)
Gain on sale of other real estate owned (45) (229)
Provision for losses on other real estate
owned 196 307
Gain on sale of branches (2,515) -
(Increase) decrease in interest receivable 7,957 (480)
Increase in other assets (84,985) (9,229)
Increase (decrease) in interest payable (2,733) 18,880
Decrease in taxes payable (5,641) (837)
Increase (decrease) in other payables 144,287 (11,823)
------------ ------------
Net cash provided by operating activities 198,538 77,995
Investing Activities:
Proceeds from maturities/calls of investment
securities 166,213 248,306
Purchases of investment securities (340,563) (3,773)
Proceeds from sales of securities
available for sale 629,254 602,589
Proceeds from maturities/calls of
securities available for sale 404,308 93,974
Purchases of securities available for sale (1,060,434) (1,197,419)
Net (increase) decrease in federal funds
sold and securities purchased
under agreements to resell 228,763 (21,176)
Net increase in loan portfolio (259,829) (475,133)
Acquisitions, net of cash acquired (83,329) -
Sale of branches (47,273) -
Purchases of premises and equipment (21,764) (21,580)
Proceeds from sales of premises
and equipment 798 674
Net decrease in interest bearing
deposits with other banks 1,522 2,586
Proceeds from sales of other
real estate owned 6,583 2,856
------------ ------------
Net cash used by investing activities (375,751) (768,096)
</TABLE>
<PAGE>
<TABLE>
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
<CAPTION>
Nine Months Ended
September 30
-----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Financing Activities:
Net increase in demand deposits,
NOW accounts and savings accounts $ 386,174 $ 6,009
Net increase in time deposits 89,133 248,490
Net increase (decrease) in federal funds
purchased (334,020) 197,231
Net decrease in securities sold
under agreements to repurchase (80,254) (46,566)
Net increase in short-term
borrowings 101,357 91,839
Issuance of FHLB advances and
other borrowings 14,395 175,000
Repayment of long-term debt (1,347) (3,109)
Purchase of treasury shares (45,590) -
Common dividends paid (37,488) (32,002)
Dividends paid by acquired banks
prior to acquisition (330) -
Repayment of loans to finance stock
purchases 2,404 1,990
Proceeds from exercise of stock options 1,716 2,696
------------ ------------
Net cash provided by financing activities 96,150 641,578
------------ ------------
Net decrease in cash and due from banks (81,063) (48,523)
Cash and due from banks at beginning of period 565,188 517,974
------------ ------------
Cash and due from banks at end of period $ 484,125 $ 469,451
============ ============
Schedule of noncash investing and
financing activities:
Transfers of loans to other real estate owned $ 3,697 $ 6,454
Loans to facilitate the sale of
other real estate owned 1,565 1,455
Loans to finance stock purchases 1,782 1,779
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 (31,396) 13,433
Transfer of securities available for
sale to held-to-maturity securities 193,129 -
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 29,590
------------
Net liabilities sold $ 49,788
============
Acquisitions:
Assets acquired $ 797,193
Liabilities assumed 667,095
------------
Net assets acquired 130,098
Treasury stock issued 46,769
------------
Cash paid $ 83,329
============
</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 accordingly all prior period
information has been restated.
On August 23, 1996, the Company completed the acquisition of CFB Bancorp,
Inc. ("CFB") of Jacksonville, Florida, and its bank subsidiary, Community First
Bank, through the issuance of 1,325,957 shares of the Company's common stock.
At the date of closing, CFB had assets of $302 million and deposits of $253
million. The transaction was accounted for under the purchase method of
accounting.
On September 27, 1996, the Company completed the acquisition of Texas
American Bank ("Texas American") of San Antonio, Texas. At the date of
closing, Texas American had assets of $65 million and equity of $5 million,
with the issuance of 324,977 shares of the Company's common stock. The
transaction was accounted for under the pooling-of-interests method of
accounting and accordingly all prior period information has been restated.
The Company completed the acquisition of ProBank of Houston, Texas, on
October 24, 1996. At the date of closing, ProBank had assets of $61 million
and deposits of $59 million. The transaction was accounted for under the
purchase method of accounting.
On August 5, 1996, the Company signed a definitive agreement to acquire
Enterprise National Bank ("Enterprise") of Jacksonville, Florida. At September
30, 1996, Enterprise had assets of $162 million and equity of $14 million. It
is anticipated that the transaction will close in the fourth quarter of 1996 or
in the first quarter of 1997 and will be accounted for under the pooling-of-
interests method of accounting.
<PAGE>
NOTE 2 - Business Combinations (continued)
On September 18, 1996, the Company signed a letter of intent to acquire
Horizon Bancorp, Inc. ("Horizon"), and its subsidiary, Horizon Bank & Trust, of
Austin, Texas. At September 30, 1996, Horizon had assets of $143 million and
equity of $12 million. It is anticipated that the transaction will close in
the first quarter of 1997 and will be accounted for under the pooling-of-
interests method of accounting.
NOTE 3 - Impaired Loans
At September 30, 1996, the recorded investment in loans that are considered
impaired under generally accepted accounting principles was $27.9 million, of
which $10.3 million were on nonaccrual status. Included in this amount is
$27.4 million of impaired loans for which the related allowance for loan losses
was $5.6 million and $490,000 of loans that have no related allowance for loan
losses. At September 30, 1995, impaired loans totaled $41.4 million.
NOTE 4 - Stock Repurchase
On April 29, 1996, the Company purchased 1,350,000 shares of its common
stock, 1,325,957 of which were reissued in connection with the acquisition of
CFB which was consummated 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 September 30, 1996, decreased 15 percent to
$25.8 million while net income for the first nine months of 1996 increased 12
percent to $94.5 million from the comparable prior year periods. Net income
per common share for the third quarter declined 13 percent to $0.65 compared to
the same period in 1995 while net income per common share for the first nine
months of 1996 increased 12 percent to $2.35. Net interest income increased by
$8.9 million, or 10 percent, during the third quarter of 1996 and $21.2
million, or 8 percent, during the first nine months of the year. Noninterest
income and noninterest expense increased 15 percent and 28 percent,
respectively, in the third quarter of 1996 while for the first nine months of
1996, noninterest income and noninterest expense increased 23 percent and 10
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, with the issuance of 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, by issuing 954,962 shares of the Company's common stock. In
July, 1996, the Company issued 549,986 shares of its common stock to acquire
Royall Financial Corporation ("Royall") of Palestine, Texas, and its bank
subsidiary, Royall National Bank of Palestine. The Company issued 324,977
shares of its common stock in the acquisition of Texas American Bank ("Texas
American") of San Antonio, Texas in September, 1996. These acquisitions 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 Note 2
- - Business Combinations in the Notes to the Consolidated Financial Statements
and 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 September 30, 1996, increased
$8.9 million over the third quarter of 1995 to $101.8 million. On a tax-
equivalent basis, net interest income increased $8.8 million, or 9 percent.
This increase was a result of a $14.8 million, or 8 percent, increase in
interest income on a tax-equivalent basis and a $6.0 million, or 6 percent,
increase in interest expense. The increase in interest income was due to an
increase in average earning assets of $947 million which more than offset a
decrease in the average yield on earning assets from 8.26 percent to 8.09
percent. The largest portion of the increase in earning assets occurred in the
average balances of loans and investment securities. The increases in the
average balances of loans and investment securities were funded by increases in
all categories of deposits.
Interest expense for the three months ended September 30, 1996, increased by
$6.0 million, or 6 percent, from the prior year, due principally to a 19
percent increase in average interest bearing deposits partially offset by a 10
basis point decrease in the average rate paid on deposits. The average balance
of all other categories of interest bearing liabilities decreased during the
quarter with federal funds purchased and securities sold under agreements to
repurchase declining by $275 million, or 31 percent.
For the nine months ended September 30, 1996, net interest income increased
$21.2 million, or 8 percent, over the prior year period to $296.1 million. On
a tax-equivalent basis, net interest income increased $20.8 million, or 7
percent. A decrease in the average yield on earning assets from 8.29 percent
to 8.14 percent was more than offset by an increase in average earning assets
of $919 million resulting in a $46.2 million, or 8 percent, increase in
interest income. As noted above, growth in the average balance of deposits
funded the increase in loans and investment securities.
Interest expense for the nine months ended September 30, 1996, increased by
$25.4 million, or 9 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 8 basis points.
The decrease in the average rate paid on interest bearing liabilities resulted
from a 2 basis point increase in the rate paid on deposits which was more than
offset by a 31 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 13 percent while the average
balance of FHLB advances and other borrowings increased by 14 percent as a
result of the additional borrowings issued in the latter 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 nine months of 1996, the net interest
margin, on a tax-equivalent basis, was 4.01 percent compared to 4.11 percent
for the same period in 1995. This 10 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 8 basis points, the yield on interest earning assets decreased 15
basis points, including a 12 basis point decrease in the yield on loans. The
impact of this decline on net interest margin was partially mitigated by a
seven percent increase in the average balance of noninterest bearing demand
deposits. During the first nine 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 three
basis points during the nine months ended September 30, 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.
For the third quarter of 1996, the net interest margin, on a tax-equivalent
basis, was 3.98 percent compared to 3.99 percent for the same period in 1995.
A decrease in the average rate earned on interest earning assets from 8.26
percent to 8.09 percent was the major contributor to the decline in the net
interest margin. The impact of a 17 basis point decrease in the average rate
earned on interest earning assets was effectively offset by a 20 basis point
decrease in rate paid on interest bearing liabilities from 5.03 percent to 4.83
percent. During the third 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 one basis point as
compared to a positive impact of three 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 nine months and three
months ended September 30, 1996, as compared to comparable periods of 1995 (in
thousands):
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended
September 30, 1996
----------------------------------------------
Change
1996 Attributed to
to ---------------------------------
1995 Volume Rate Mix
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Interest income:
Loans $32,500 $38,212 $(5,229) $ (483)
Investment securities (62,075) (61,021) (2,477) 1,423
Investment securities
available for sale 72,352 53,000 7,651 11,701
Trading account securities 1,511 2,058 (345) (202)
Fed funds and resale agreements 2,037 2,882 (441) (404)
Time deposits in other banks (85) (92) 22 (15)
--------- --------- --------- ---------
Increase in interest income $46,240 $35,039 $ (819) $12,020
========= ========= ========= =========
Interest expense:
Deposits $31,559 $30,537 $ 894 $ 128
Fed funds purchased and repos (7,182) (4,560) (3,030) 408
Other short-term borrowings (1,782) (1,211) (666) 95
FHLB and other borrowings 2,843 3,993 (1,005) (145)
--------- --------- --------- ---------
Increase in interest expense $25,438 $28,759 $(3,807) $ 486
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
September 30, 1996
----------------------------------------------
Change
1996 Attributed to
to ---------------------------------
1995 Volume Rate Mix
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Interest income:
Loans $10,101 $13,012 $(2,669) $ (242)
Investment securities (16,721) (16,277) (860) 416
Investment securities
available for sale 20,377 16,044 2,092 2,241
Trading account securities 84 397 (239) (74)
Fed funds and resale agreements 1,046 1,272 (92) (134)
Time deposits in other banks (21) (22) 3 (2)
--------- --------- --------- ---------
Increase in interest income $14,866 $14,426 $(1,765) $ 2,205
========= ========= ========= =========
Interest expense:
Deposits $12,209 $14,273 $(1,730) $ (334)
Fed funds purchased and repos (4,739) (3,836) (1,302) 399
Other short-term borrowings (1,092) (943) (200) 51
FHLB and other borrowings (332) (255) (79) 2
--------- --------- --------- ---------
Increase in interest expense $ 6,046 $ 9,239 $(3,311) $ 118
========= ========= ========= =========
</TABLE>
Noninterest Income and Noninterest Expense
For the nine months ended September 30, 1996, noninterest income increased
$21.8 million, or 23 percent, to $115.2 million. An increase of $5.4 million
in investment securities gains, along with a $2.5 million gain on branch sales
in the first quarter of the year and a $3.2 million increase in retail
investment sales income, represented the majority of the increase. During the
first nine months of the year, service charges on deposit accounts increased
$3.0 million, or 7 percent, and trading account profits and commissions
increased $2.3 million. Noninterest income for the third quarter of 1996
increased $4.9 million, or 15 percent, over the same period in 1995. Service
charges on deposit accounts increased $1.0 million, or 7 percent, while
investment securities gains increased $1.6 million during the third quarter of
1996. 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 nine months of 1996 was due to increased
customer sales activity in the first quarter which declined during the third
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 nine months of 1996, trading account profits related specifically
to derivative securities were approximately $615,000, consisting of $270,000 of
profits related to collateralized mortgage obligations ("CMOs") held in the
trading account and $345,000 of profits on non-CMO derivative securities,
specifically options, futures, and interest rate swaps, caps, and floors.
Other noninterest income increased 28 percent during the third quarter of 1996
and 36 percent during the first nine months of the year due to the
aforementioned gain on branch sales and increased retail investment sales
income.
The components of trading account assets at September 30, 1996, and December
31, 1995, are presented in the following table.
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
------------------ -----------------
(in Thousands)
<S> <C> <C>
U.S. Treasury and Government agency $ 31,053 $ 54,318
State and political subdivisions 5,443 19,583
Mortgage-backed pass through
securities 27,794 16,471
Other securities 280 396
Derivative securities:
Collateralized mortgage obligations 15,475 8,472
Interest rate floors and caps 678 2,676
Other options 108 -
----------- -----------
$ 80,831 $ 101,916
=========== ===========
</TABLE>
Noninterest expense increased $20.7 million, or 28 percent, during the third
quarter of 1996 over the same period in 1995. For the nine months ended
September 30, 1996, noninterest expense increased by 10 percent to $250.6
million. Salaries increased $4.8 million, or 14 percent, for the third quarter
while employee benefits increased $2.8 million, or 57 percent. During the
first nine months of 1996, salaries increased by $10.6 million, or 11 percent,
while employee benefits increased $4.4 million, or 25 percent. The increase in
salaries over 1995 levels was the result of business combinations completed
during the second and third quarters and normal business growth as well as
regular merit increases and increased executive incentive expense. The
increase in employee benefits was due to increased payroll tax expense and
other employee benefits associated with acquisitions as well as increased ESOP
and pension plan expense. Net occupancy expense increased 14 percent in the
third quarter of 1996 and 9 percent in the first nine months of the year due to
decreased rental income related to the Company's headquarters and additional
depreciation expense. FDIC insurance premiums increased $8.1 million in the
third quarter and $1.4 million in the first nine months from the prior year.
The increase is due to the special one-time Savings Association Insurance Fund
("SAIF") assessment of $7.6 million recorded during the third quarter partially
offset by a substantial decrease in the insurance premium rates that became
effective in June, 1995. During the first nine months of 1996, other
noninterest expense increased $4.0 million, or 6 percent, due to increases in
marketing and acquisition expenses as well as increased amortization expense
resulting from increased intangibles related to acquisitions partially offset
by 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 third quarter of the year, other noninterest
expense increased 19 percent to $27.0 million.
Income Taxes
Income tax expense decreased by $2.1 million, or 13 percent, during the
third quarter of 1996 compared to the same period in 1995 due to the 14 percent
decrease in pre-tax income. Income tax expense increased $6.7 million, or 14
percent, during the first nine months of the year. The effective tax rate for
the first nine 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 September 30, 1996,
increased five percent from the same period in 1995. For the nine months ended
September 30, 1996, the provision for loan losses increased $4.5 million. This
increase resulted from a $4.6 million increase in net charge-offs during the
first nine 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 three quarters of 1996 were 0.25 percent compared with 0.18 percent for
the first nine 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 September 30, 1996, was $118
million compared to $111 million at December 31, 1995. The ratio of the
allowance for loan losses to loans outstanding was 1.63 percent at September
30, 1996, down from 1.69 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 $30.9 million at September 30, 1996, compared
to $23.2 million at December 31, 1995, an increase of 34 percent, as nonaccrual
loans increased $9.8 million. This increase was due in part to nonperforming
assets acquired in acquisitions completed during the second quarter of 1996.
At September 30, 1996, the allowance for loan losses as a percentage of
nonperforming loans was 474 percent as compared to 817 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 592 percent at
December 31, 1995, to 386 percent at September 30, 1996.
Nonperforming assets as a percentage of total loans and other real estate
owned increased to 0.43 percent at September 30, 1996, from 0.35 percent at
December 31, 1995. The amount recorded in other repossessed assets at
September 30, 1996, was $484,000, down from $523,000 at December 31, 1995.
Loans past due ninety days or more but still accruing interest increased 9
percent from $5.2 million at December 31, 1995, to $5.7 million at September
30, 1996, representing 0.08 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 September 30, 1996, were $11.6 billion, up 9 percent from
December 31, 1995. This increase was due principally to an 11 percent increase
in loans. Retained earnings remained the primary source of growth for the
Company's capital base.
Assets and Funding
At September 30, 1996, earning assets totaled $10.7 billion, up from $9.8
billion at December 31, 1995, an increase of 9 percent. The mix of earning
assets shifted moderately toward loans and investment securities in the first
nine months of 1996 with loans comprising 68 percent of total earning assets at
September 30, 1996, up from 67 percent at December 31, 1995, while the
percentage of earning assets represented by total investment securities
increased to 30 percent from 29 percent. Federal funds sold and securities
purchased under agreements to resell decreased $179 million, or 65 percent. The
$145 million increase in other assets resulted from receivables related to
sales of available-for-sale securities that had not settled at September 30,
1996.
A $932 million increase in interest bearing deposits during the first nine
months of 1996 was partially offset by a $411 million decrease in federal funds
purchased and securities sold under agreements to repurchase while other short-
term borrowings increased $130 million. Accrued expenses and other liabilities
increased $127 million due to a $133 million payable resulting from securities
purchases transacted near the end of the quarter that had not settled at
September 30, 1996. At September 30, 1996, deposits accounted for 79 percent of
the Company's funding, up from 76 percent at year end.
Liquidity and Capital Resources
Net cash provided by operating activities totaled $198.5 million for the
nine months ended September 30, 1996. For the first nine months of 1996, net
cash used by investing activities of $375.8 million consisted of proceeds from
maturities of investment securities of $166.2 million, proceeds from maturities
of securities available for sale of $404.3 million, proceeds from sales of
securities available for sale of $629.3 million and a decrease in federal funds
sold and securities purchased under agreements to resell of $228.8 million.
Cash outflows consisted of $1.1 billion in purchases of investment securities
available for sale, $340.6 million in purchases of held-to-maturity investment
securities, a $260.0 million increase in loans outstanding, $83.3 million paid
in the acquisition of banks and $47.3 million paid in the sale of branches. Net
cash provided by financing activities of $96.2 million consisted of increases
in deposits and other short-term borrowings reduced by the payment of $37.5
million in common stock dividends and the repurchase of $45.6 million of
treasury stock as well as decreases in securities sold under agreements to
repurchase and federal funds purchased.
Total shareholders' equity at September 30, 1996, was 6.69 percent of total
assets compared to 6.91 percent at December 31, 1995, due to 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 September 30, 1996, of $20.1 million has
been reflected as a reduction of shareholders' equity. The Company issued
treasury stock totaling $46 million in connection with the acquisition of CFB
Bancorp, Inc. in August, 1996. 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 6.20
percent at September 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 6.06 percent at September 30, 1996.
Tier I capital and total qualifying capital (Tier I capital plus Tier II
capital), as defined by regulatory agencies, as of September 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
September 30, 1996, were 8.69 percent and 11.53 percent, respectively, compared
to 10.10 percent and 13.17 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. The additional goodwill and other intangible assets
recorded in connection with the acquisition of Peoples Bancshares, Inc., Post
Oak Bank, and CFB Bancorp, Inc. negatively impacted the Company's capital
ratios. Increased regulatory activity in the financial industry as a whole will
continue to impact 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>
Nine Months Ended
September 30
----------------------------
1996 1995
----------- -----------
<S> <C> <C>
ALLOWANCE FOR LOAN LOSSES
Balance at beginning of period $ 111,235 $ 110,958
Add: Provision charged to earnings 12,935 8,478
Balance due to acquisition/(divestitures) 6,973 -
Deduct: Loans charged off 17,026 13,017
Loan recoveries (4,156) (4,713)
----------- -----------
Net charge-offs 12,870 8,304
----------- -----------
Balance at end of period $ 118,273 $ 111,132
=========== ===========
Net charge-offs as a percentage of
average loans (annualized) 0.25% 0.18%
Recoveries as a percentage of charge-offs 24.41% 36.21%
</TABLE>
<TABLE>
<CAPTION>
September 30 December 31
1996 1995
------------ -----------
<S> <C> <C>
NONPERFORMING ASSETS
Nonaccrual loans $ 22,386 $ 12,538
Renegotiated loans 2,546 1,070
----------- ----------
Total nonperforming loans 24,932 13,608
Other real estate 6,014 9,550
----------- ----------
Total nonperforming assets $ 30,946 $ 23,158
=========== ==========
Accruing loans ninety days past due $ 5,655 $ 5,181
Other repossessed assets $ 484 $ 523
Allowance for loan losses $ 118,273 $ 111,235
Allowance as a percentage of loans 1.63% 1.69%
Total nonperforming loans as a percentage
of loans and ORE 0.34% 0.21%
Total nonperforming assets as a percentage
of loans and ORE 0.43% 0.35%
Accruing loans ninety days past due as a
percentage of loans and ORE 0.08% 0.08%
Allowance for loan losses as a percentage
of nonperforming loans 474.38% 817.42%
Allowance for loan losses as a percentage
of nonperforming assets 382.19% 480.33%
</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) Compass Bancshares, Inc. 1996 Long Term Incentive Plan
(incorporated by reference to Exhibit 4(g) to the Company's
Registration Statement on Form S-8, Registration No. 333-15117,
filed October 30, 1996, 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)
(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)
(10)(i) Employment Agreement, dated December 14, 1994, between Compass
Bancshares, Inc. and G. Ray Stone (incorporated by reference to
Exhibit 10(i) to the Company's Registration Statement on Form
S-4, Registration No. 333-15373, filed November 1, 1996, 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
<PAGE>
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION Page
- --------------------------------------------------------------------- ----
Item 6 Exhibits and Reports on Form 8-K (continued)
(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.
November 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 Nine Months Ended September 30, 1996 and 1995
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
----------------------- -----------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
(in Thousands Except Per Share Data)
<S> <C> <C> <C> <C>
PRIMARY:
Weighted average shares
outstanding 39,503 40,293 39,907 40,222
Net effect of the assumed
exercise of stock options -
based on the treasury stock
method using average market
price 310 320 288 252
---------- ---------- ---------- ----------
Total weighted average shares
and common stock equivalents
outstanding 39,813 40,613 40,195 40,474
========== ========== ========== ==========
Net income available
to common shareholders $ 25,809 $ 30,341 $ 94,480 $ 84,677
========== ========== ========== ==========
Net income per common share $ 0.65 $ 0.75 $ 2.35 $ 2.09
========== ========== ========== ==========
FULLY DILUTED:
Weighted average shares
outstanding 39,503 40,293 39,907 40,222
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 338 328 320 328
---------- ---------- ---------- ----------
Total weighted average shares
and common stock equivalents
outstanding 39,841 40,621 40,227 40,550
========== ========== ========== ==========
Net income $ 25,809 $ 30,341 $ 94,480 $ 84,677
========== ========== ========== ==========
Net income per common share $ 0.65 $ 0.75 $ 2.35 $ 2.09
========== ========== ========== ==========
</TABLE>
<TABLE>
Exhibit (12)
Compass Bancshares, Inc. and Subsidiaries
Ratio of Earnings to Fixed Charges
Nine Months Ended September 30, 1996 and 1995
<CAPTION>
Nine Months Ended
September 30
--------------------------
1996 1995
---------- ----------
(in Thousands)
<S> <C> <C>
Pretax income $ 147,732 $ 131,238
Add fixed charges:
Interest on deposits 244,512 212,953
Interest on borrowings 63,899 70,020
Portion of rental expense
representing interest expense 2,669 2,613
---------- ----------
Total fixed charges 311,080 285,586
---------- ----------
Income before fixed charges $ 458,812 $ 416,824
========== ==========
Pretax income $ 147,732 $ 131,238
Add fixed charges (excluding
interest on deposits):
Interest on borrowings 63,899 70,020
Portion of rental expense
representing interest expense 2,669 2,613
---------- ----------
Total fixed charges 66,568 72,633
---------- ----------
Income before fixed charges
(excluding interest on deposits) $ 214,300 $ 203,871
========== ==========
RATIO OF EARNINGS TO FIXED CHARGES:
Including interest on deposits 1.47x 1.46x
Excluding interest on deposits 3.22x 2.81x
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF INCOME AND RELATED SUPPLEMENTAL
SCHEDULES OF COMPASS BANCSHARES, INC. AS OF AND FOR THE PERIOD ENDED SEPTEMBER
30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS AND RELATED SUPPLEMENTAL SCHEDULES.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 484,125
<INT-BEARING-DEPOSITS> 809
<FED-FUNDS-SOLD> 94,949
<TRADING-ASSETS> 80,831
<INVESTMENTS-HELD-FOR-SALE> 2,056,505
<INVESTMENTS-CARRYING> 1,162,207
<INVESTMENTS-MARKET> 1,165,566
<LOANS> 7,274,900
<ALLOWANCE> 118,273
<TOTAL-ASSETS> 11,605,379
<DEPOSITS> 9,119,124
<SHORT-TERM> 907,544
<LIABILITIES-OTHER> 199,528
<LONG-TERM> 602,373
0
0
<COMMON> 81,019
<OTHER-SE> 695,791
<TOTAL-LIABILITIES-AND-EQUITY> 11,605,379
<INTEREST-LOAN> 445,384
<INTEREST-INVEST> 148,885
<INTEREST-OTHER> 10,199
<INTEREST-TOTAL> 604,468
<INTEREST-DEPOSIT> 244,512
<INTEREST-EXPENSE> 308,411
<INTEREST-INCOME-NET> 296,057
<LOAN-LOSSES> 12,935
<SECURITIES-GAINS> 8,131
<EXPENSE-OTHER> 250,615
<INCOME-PRETAX> 147,732
<INCOME-PRE-EXTRAORDINARY> 94,480
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 94,480
<EPS-PRIMARY> 2.35
<EPS-DILUTED> 2.35
<YIELD-ACTUAL> 4.01
<LOANS-NON> 22,386
<LOANS-PAST> 5,655
<LOANS-TROUBLED> 2,546
<LOANS-PROBLEM> 0<F1>
<ALLOWANCE-OPEN> 111,235
<CHARGE-OFFS> 17,026
<RECOVERIES> 4,156
<ALLOWANCE-CLOSE> 118,273
<ALLOWANCE-DOMESTIC> 118,273
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0<F1>
<FN>
<F1>Information is not required to be disclosed in interim filings with the
Commission.
</FN>
</TABLE>
