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, 1997 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, 1997
-------------------------- ----------------------------
Common Stock, $2 Par Value 64,325,082
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, 1997 and December 31,
1996 3
Consolidated Statements of Income for the Three and Six Months
Ended June 30, 1997 and 1996 4
Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 1997 and 1996 5
Notes to Consolidated Financial Statements 7
Item 2 Management's Discussion and Analysis of Results of Operations
and Financial Condition 9
PART II. OTHER INFORMATION
- ------------------------------------------------------------------------
Item 4 Submission of Matters to a Vote of Security Holders 16
Item 6 Exhibits and Reports on Form 8-K 16
<PAGE>
<TABLE>
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In Thousands)
(Unaudited)
<CAPTION>
June 30 December 31
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 480,620 $ 725,810
Federal funds sold and securities purchased
under agreements to resell 130,380 62,874
Interest bearing deposits with other banks 495 491
Investment securities (market value of
$1,118,903 and $1,121,347 for 1997 and
1996, respectively) 1,110,495 1,114,187
Investment securities available for sale 1,943,347 2,081,638
Trading account securities 111,545 91,452
Loans, net of unearned income 8,249,794 7,740,188
Allowance for loan losses (121,008) (120,868)
------------ ------------
Net loans 8,128,786 7,619,320
Premises and equipment, net 284,172 259,561
Other assets 259,451 258,309
------------ ------------
Total assets $12,449,291 $12,213,642
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest bearing $ 1,800,638 $ 1,854,601
Interest bearing 7,610,528 7,735,279
------------ ------------
Total deposits 9,411,166 9,589,880
Federal funds purchased and securities
sold under agreements to repurchase 701,487 807,967
Other short-term borrowings 372,788 201,901
Accrued expenses and other liabilities 68,507 81,444
FHLB and other borrowings 909,185 701,470
Guaranteed preferred beneficial interests
in Company's junior subordinated
deferrable interest debentures 100,000 -
------------ ------------
Total liabilities 11,563,133 11,382,662
Shareholders' equity:
Common stock of $2 par value:
Authorized--100,000,000 shares;
Issued--64,270,131 shares in 1997 and
42,695,024 shares in 1996 128,540 85,390
Surplus 83,397 71,458
Loans to finance stock purchases (5,137) (6,026)
Unearned restricted stock (3,356) (1,080)
Net unrealized holding loss on
available-for-sale securities (1,793) (2,965)
Retained earnings 684,507 684,203
------------ ------------
Total shareholders' equity 886,158 830,980
------------ ------------
Total liabilities and shareholders'
equity $12,449,291 $12,213,642
============ ============
</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
---------------------- -----------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $178,409 $155,099 $346,309 $304,686
Interest and dividends on
investment securities 20,315 13,114 41,134 25,735
Interest on investment
securities available
for sale 32,394 36,185 64,547 72,968
Interest on trading account
securities 1,706 1,597 3,194 3,610
Interest on federal funds
sold and securities
purchased under agreements
to resell 1,096 1,864 2,109 3,536
Interest on interest bearing
deposits with other banks 11 21 23 56
---------- ---------- ---------- ----------
Total interest income 233,931 207,880 457,316 410,591
INTEREST EXPENSE:
Interest on deposits 85,207 83,217 169,319 163,129
Interest on federal funds
purchased and securities
sold under agreements to
repurchase 12,458 8,310 22,273 18,943
Interest on other short
-term borrowings 2,965 2,613 5,137 4,126
Interest on FHLB and other
borrowings 12,741 10,277 24,195 20,591
Interest on guaranteed
preferred beneficial
interests in Company's
junior subordinated
deferrable interest
debentures 2,058 - 3,681 -
---------- ---------- ---------- ----------
Total interest expense 115,429 104,417 224,605 206,789
---------- ---------- ---------- ----------
Net interest income 118,502 103,463 232,711 203,802
Provision for loan losses 4,449 5,245 9,803 8,852
---------- ---------- ---------- ----------
Net interest income
after provision for
loan losses 114,053 98,218 222,908 194,950
NONINTEREST INCOME:
Service charges on deposit
accounts 17,429 15,522 34,685 30,267
Trust fees 3,654 3,871 7,498 8,271
Trading account profits and
commissions 3,167 2,878 7,394 7,005
Investment securities
gains (losses), net (84) (28) (163) 6,674
Retail investment sales 4,251 3,429 8,296 6,532
Gain on sale of branches - 139 - 2,300
Other 14,166 9,862 25,227 19,108
---------- ---------- ---------- ----------
Total noninterest income 42,583 35,673 82,937 80,157
NONINTEREST EXPENSE:
Salaries and benefits 51,000 45,652 102,517 89,171
Net occupancy expense 7,290 6,547 14,627 13,006
Equipment expense 7,293 5,730 13,597 11,643
FDIC insurance premium 525 1,012 794 1,734
Other 31,751 24,926 58,691 49,475
---------- ---------- ---------- ----------
Total noninterest expense 97,859 83,867 190,226 165,029
---------- ---------- ---------- ----------
Net income before income
tax expense 58,777 50,024 115,619 110,078
Income tax expense 21,180 17,677 41,946 39,521
---------- ---------- ---------- ----------
NET INCOME $ 37,597 $ 32,347 $ 73,673 $ 70,557
========== ========== ========== ==========
NET INCOME PER COMMON SHARE $0.58 $0.51 $1.13 $1.11
Weighted average shares
outstanding 65,039 63,112 64,926 63,704
Dividends per common share $0.2367 $0.2133 $0.4733 $0.4267
</TABLE>
<PAGE>
<TABLE>
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
<CAPTION>
Six Months Ended
June 30
-----------------------------
1997 1996
------------ ------------
<S> <C> <C>
Operating Activities:
Net income $ 73,673 $ 70,557
Adjustments to reconcile net income to
cash provided by operations:
Depreciation and amortization 20,460 17,974
Accretion of discount and loan fees (6,756) (7,838)
Provision for loan losses 9,803 8,852
Net change in trading account securities (20,093) 2,030
Net change in mortgage loans available
for sale 5,566 (1,900)
(Gain) loss on sale of investment securities 163 (6,674)
Gain on sale of premises and equipment (41) (105)
Gain on sale of other real estate owned (123) (52)
Provision for losses on other real estate
owned 144 102
Gain on sale of branches - (2,300)
(Increase) decrease in interest receivable (7,834) 2,797
Decrease in other assets 3,443 5,147
Decrease in interest payable (1,607) (4,339)
Increase (decrease) in taxes payable 3,386 (9,436)
Decrease in other payables (15,513) (2,802)
------------ ------------
Net cash provided by operating activities 64,671 72,013
Investing Activities:
Proceeds from maturities/calls of investment
securities 172,705 110,548
Purchases of investment securities (49,582) (11,770)
Proceeds from sales of securities
available for sale 125,051 441,760
Proceeds from maturities/calls of
securities available for sale 293,705 312,913
Purchases of securities available for sale (398,078) (878,764)
Net (increase) decrease in federal funds
sold and securities purchased
under agreements to resell (67,506) 245,165
Net increase in loan portfolio (522,535) (161,812)
Purchase (divestiture) of branches 22,216 (46,524)
Acquisitions, net of cash acquired - (73,585)
Purchases of premises and equipment (36,038) (12,605)
Net (increase) decrease in interest
bearing deposits with other banks (4) 1,325
Proceeds from sales of other
real estate owned 3,698 1,668
------------ ------------
Net cash used by investing activities (456,368) (71,681)
<PAGE>
</TABLE>
<TABLE>
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
<CAPTION>
Six Months Ended
June 30
-----------------------------
1997 1996
------------ ------------
<S> <C> <C>
Financing Activities:
Net increase (decrease) in demand deposits,
NOW accounts and savings accounts $ (102,894) $ 266,771
Net increase (decrease) in time deposits (101,285) 183,607
Net decrease in federal funds
purchased (125,264) (476,883)
Net increase (decrease) in securities sold
under agreements to repurchase 18,784 (64,449)
Net increase in short-term
borrowings 170,887 57,716
Issuance of FHLB advances and
other borrowings 312,500 25,000
Repayment of long-term debt (104,831) (1,297)
Issuance of guaranteed preferred beneficial
interests in Company's junior subordinated
deferrable interest debentures 100,000 -
Purchase of treasury shares (386) (45,590)
Common dividends paid (30,336) (24,628)
Exercise of stock options of acquired
entities prior to acquisition 6,473 -
Repayment of loans to finance stock
purchases 1,966 1,230
Proceeds from exercise of stock options 893 2,888
------------ ------------
Net cash provided (used) by
financing activities 146,507 (75,635)
------------ ------------
Net decrease in cash and due from banks (245,190) (75,303)
Cash and due from banks at beginning of period 725,810 628,888
------------ ------------
Cash and due from banks at end of period $ 480,620 $ 553,585
============ ============
Schedule of noncash investing and
financing activities:
Transfers of loans to other real estate owned $ 4,097 $ 994
Loans to facilitate the sale of
other real estate owned 494 760
Loans to finance stock purchases 1,077 1,438
Tax benefit realized upon exercise
of stock options 1,778 56
Issuance of restricted stock 2,706 1,296
Change in unrealized gain/loss on available
for sale securities 1,446 (34,562)
Transfer of securities available for
sale to held-to-maturity securities 118,947 115,987
Issuance of treasury stock upon exercise
of stock options 386 134
Acquisition (divestiture) of branches:
Liabilities assumed (sold) $ 25,661 $ (79,378)
Assets acquired (sold) 3,445 (30,554)
------------ ------------
Net liabilities assumed (sold) $ 22,216 $ (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 notes included in the Company's
annual report on Form 10-K for the year ended December 31, 1996.
NOTE 2 - Summary of Significant Accounting Policies
Derivative Financial Instruments
As a part of its overall interest rate risk management, the Company uses
interest rate futures, swaps, caps and floors. Interest rate futures contracts
are accounted for as hedges provided the criteria in Financial Accounting
Statement No. 80 ("FAS80"), Accounting for Futures Contracts, are met. For
interest rate swaps, caps and floors that are designated as synthetic
alterations of existing assets or liabilities, unrealized gains or losses on
such interest rate contracts are deferred. Interest rate futures contracts that
do not meet the hedge criteria of FAS80 and interest rate swaps, caps and
floors that are not designated as synthetic alterations, are accounted for as
trading contracts and marked to market through earnings. Refer to the
Securities accounting policy under the Summary of Significant Accounting
Policies in the Company's December 31, 1996 annual report on Form 10-K for
additional accounting policies related to derivative financial instruments.
NOTE 3 - Business Combinations
On January 15, 1997, the Company completed the acquisition of Enterprise
National Bank ("Enterprise") of Jacksonville, Florida, with the issuance of
1,620,782 shares of the Company's common stock. At the date of closing,
Enterprise had assets of $171 million and equity of $18 million. The
transaction was accounted for under the pooling-of-interests method of
accounting and accordingly all prior period information has been restated.
On March 12, 1997, the Company completed the acquisition of Horizon Bancorp,
Inc. ("Horizon"), of Austin, Texas, and its bank subsidiary, Horizon Bank &
Trust, ssb, with the issuance of 1,333,220 shares of the Company's common
stock. At the date of closing, Horizon had assets of $154 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 April 17, 1997, the Company acquired Greater Brazos Valley Bancorp, Inc.
("Greater Brazos"), and its subsidiary, Commerce National Bank, of College
Station, Texas, with the issuance of 323,918 shares of the Company's common
stock. At the date of closing, Greater Brazos had assets of $58 million and
equity of $3 million. The transaction was accounted for under the pooling-of-
interests method of accounting and accordingly all prior period information has
been restated.
On July 15, 1997, the Company acquired Central Texas Bancorp, Inc. ("Central
Texas"), of Waco, Texas, and its subsidiary, Texas National Bank of Waco, with
the issuance of 1,537,444 shares of the Company's common stock. At the date of
acquisition, Central Texas had assets of $207 million and equity of $19
million. The transaction was accounted for under the pooling-of-interests
method of accounting and accordingly all prior period information will be
restated in the third quarter of 1997.
The Company signed a definitive agreement on August 6, 1997, to acquire
G.S.B. Investments, Inc. ("GSB"), and its subsidiary, Gainesville State Bank,
of Gainesville, Florida. At June 30, 1997, GSB had assets of $209 million and
equity of $21 million. It is anticipated that the transaction will close in the
first quarter of 1998 and will be accounted for under the pooling-of-interests
method of accounting.
<PAGE>
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements - Continued
NOTE 4 - Impaired Loans
At June 30, 1997, the recorded investment in loans that are considered
impaired under generally accepted accounting principles was $26.1 million, of
which $9.5 million were on nonaccrual status. Included in this amount is $25.9
million of impaired loans for which the related allowance for loan losses was
$6.1 million and $165,000 of loans that have no related allowance for loan
losses. At December 31, 1996, impaired loans totaled $25.7 million.
NOTE 5 - Recently Issued Accounting Standards
In February, 1997, the Financial Accounting Standards Board issued Financial
Accounting Statement No. 128, Earnings Per Share, ("FAS128"). FAS128 specifies
the computation, presentation and disclosure requirements for earnings per
share, replacing the current presentation of primary earnings per share with
the presentation of basic earnings per share. FAS128 is effective for both
interim and annual financial statements issued for periods ending after
December 15, 1997, with earlier adoption prohibited. Upon adoption by the
Company on January 1, 1998, all prior period earnings per share data will be
required to be restated. The Company does not expect the impact of the adoption
of FAS128 on prior period data to be material.
<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, 1997, increased 16 percent to
$37.6 million during the second quarter of 1997 while net income per common
share increased 14 percent to $0.58 from the second quarter of 1996. Excluding
securities gains and losses in the second quarter of 1997 and 1996 and the gain
on sale of the Company's corporate trust division and litigation reserves
in the second quarter of 1997, net income increased $4.8 million to $37.0
million, an increase of 15 percent, while net income per share increased
from $0.51 in 1996 to $0.57 in 1997, a 12 percent increase. Net interest income
increased 15 percent to $118.5 million from the second quarter of 1996 to the
second quarter of 1997 while the provision for loan losses decreased 15 percent
to $4.4 million. Noninterest income increased 19 percent to $42.6 million
during the second quarter while noninterest expense increased 17 percent to
$97.9 million.
For the six months ended June 30, 1997, net income increased to $73.7
million, a 4 percent increase, while net income per share increased to $1.13, a
2 percent increase, over the prior year period. Excluding securities gains and
losses in the first six months of 1997 and 1996, the gain on the sale of the
Company's corporate trust division and litigation reserves in the first six
months of 1997, and the gain on the sale of nonstrategic bank offices in the
first six months of 1996, net income increased 13 percent to $73.2 million and
net income per share increased 11 percent to $1.13. For the six month period,
net interest income increased $28.9 million, or 14 percent, while noninterest
income and noninterest expense increased 3 percent and 15 percent,
respectively. All per share information has been restated to reflect the
Company's three-for-two stock split effected in the form of a 50 percent stock
dividend on April 2, 1997.
In January, 1997, the Company completed the acquisition of Enterprise
National Bank ("Enterprise") of Jacksonville, Florida, with the issuance of
1,620,782 shares of the Company's common stock. In March, 1997, the Company
completed the acquisition of Horizon Bancorp, Inc. ("Horizon"), of Austin,
Texas, and its bank subsidiary, Horizon Bank, with the issuance of 1,333,220
shares of the Company's common stock. In April, 1997, the Company completed the
acquisitions of Greater Brazos Valley Bancorp, Inc. ("Greater Brazos"), and its
subsidiary, Commerce National Bank, of College Station, Texas, with the
issuance of 323,918 shares of the Company's common stock. 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. Acquisitions completed in 1997 and pending
acquisitions are detailed in Note 3 - Business Combinations in the Notes to the
Consolidated Financial Statements and acquisitions completed prior to 1997 are
included in "Acquisitions" and in "Pending Acquisitions" under Item 1 -
Business in the Company's 1996 Form 10-K.
Net Interest Income
Net interest income for the quarter ended June 30, 1997, increased $15.0
million over the second quarter of 1996 to $118.5 million. On a tax-equivalent
basis, net interest income increased $15.0 million, or 14 percent, as a result
of a $26.0 million, or 12 percent, increase in interest income on a tax-
equivalent basis and an $11.0 million, or 11 percent, increase in interest
expense. The increase in interest income was primarily due to an increase in
average earning assets of $1.1 billion, or 11 percent, combined with a 10 basis
point increase in the average yield on earning assets from 8.15 percent to 8.25
percent. The largest portion of the increase in average earning assets occurred
in the average balance of loans, which increased 15 percent, or $1.0 billion,
and in total investment securities which increased $110 million. These
increases were funded primarily by increases in savings deposits and FHLB and
other borrowings.
For the six months ended June 30, 1997, net interest income increased 14
percent to $232.7 million over the first six months of 1996. On a tax-
equivalent basis, net interest income increased $28.9 million, or 14 percent,
due to a $46.7 million, or 11 percent, increase in interest income on a tax-
equivalent basis and a $17.8 million, or 9 percent, increase in interest
expense. A $1.1 billion, or 11 percent, increase in average earning assets, due
primarily to a 15 percent increase in loans, and a 3 basis point increase in
the average yield on earning assets to 8.23 percent from 8.20 percent were
responsible for the increase in interest income.
Interest expense for the quarter ended June 30, 1997, increased by $11.0
million, or 11 percent, from the second quarter of 1996, due principally to an
11 percent increase in total interest bearing liabilities partially offset by a
1 basis point decrease in the rate paid on liabilities. The increase in
interest bearing liabilities was due to a $320 million, or 4 percent, increase
in deposits. Similarly, the decrease in the rate paid on interest bearing
liabilities was primarily a function of a 10 basis point decrease in the rate
paid on deposits. The average balance of long-term borrowings increased $329
million during the second quarter of 1997 from the comparable prior year
period. This was due in part to the issuance by the Company of $100 million of
guaranteed preferred beneficial interests in the Company's junior subordinated
deferrable interest debentures ("Capital Securities").
For the six months ended June 30, 1997, interest expense increased 9
percent, or $17.8 million, due to an 11 percent increase in average interest
bearing liabilities and a 10 basis point decrease in the rate paid on
liabilities. The increase in interest bearing liabilities was primarily due to
a $568 million increase in average interest bearing deposits and a $258 million
increase in average long-term borrowings during the first six months of 1997
over the prior year period. The decrease in the rate paid on interest bearing
liabilities resulted from a 17 basis point decrease in the rate paid on
interest bearing deposits and a 29 basis point decrease in the rate paid on
long-term borrowings.
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 second quarter of 1997, the net interest
margin, on a tax-equivalent basis, was 4.20 percent compared to 4.08 percent
for the same period in 1996, while increasing from 4.09 percent to 4.21 percent
in the first six months of 1997. These 12 basis point increases resulted from
the changes in rates and volumes of earning assets and the corresponding
funding sources noted previously. While the yield on interest earning assets
for the second quarter increased 10 basis points, including a 16 basis point
increase in the yield on investment securities available for sale, the yield on
interest bearing liabilities decreased 1 basis point. The impact of the decline
in the yield on interest bearing liabilities on net interest margin was further
magnified by an 8 percent increase in the average balance of noninterest
bearing demand deposits during the second quarter of 1997. For the six months
ended June 30, 1997, the increase in net interest margin was due to a 3 basis
point increase in the yield on interest earning assets and a 10 basis point
decrease in the rate paid on interest bearing liabilities.
During the second quarter of 1997, 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 two basis points as compared to a two
basis point impact for the same period in 1996. The Company's use of interest
rate contracts positively impacted the taxable equivalent net interest margin
for the six months ended June 30, 1997, increasing the net interest margin by
two basis points as compared to no impact in the first two quarters of 1996.
The following tables 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 three month and six month periods
ended June 30, 1997, as compared to the comparable periods of 1996 (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended
June 30
--------------------------------------------
Change
1997 Attributed to
to ---------------------------------
1996 Volume Rate Mix
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Interest income:
Loans $23,286 $22,966 $ 279 $ 41
Investment securities 7,153 7,558 (262) (143)
Investment securities available
for sale (3,785) (4,689) 1,039 (135)
Trading account securities 121 340 (180) (39)
Fed funds and resale agreements (768) (787) 32 (13)
Time deposits in other banks (10) (12) 6 (4)
--------- --------- --------- ---------
Increase in interest income $25,997 $25,376 $ 914 $ (293)
========= ========= ========= =========
Interest expense:
Deposits $ 1,990 $ 3,666 $(1,605) $ (71)
Fed funds purchased and repos 4,148 3,126 742 280
Other short-term borrowings 352 230 112 10
FHLB and other borrowings* 4,522 5,508 (642) (344)
--------- --------- --------- ---------
Increase in interest expense $11,012 $12,530 $(1,393) $ (125)
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
June 30
--------------------------------------------
Change
1997 Attributed to
to ---------------------------------
1996 Volume Rate Mix
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Interest income:
Loans $41,585 $44,281 $(2,354) $ (342)
Investment securities 15,352 16,228 (549) (327)
Investment securities available
for sale (8,413) (8,199) (241) 27
Trading account securities (396) (22) (377) 3
Fed funds and resale agreements (1,427) (1,452) 42 (17)
Time deposits in other banks (33) (38) 16 (11)
--------- --------- --------- ---------
Increase in interest income $46,668 $50,798 $(3,463) $ (667)
========= ========= ========= =========
Interest expense:
Deposits $ 6,190 $13,175 $(6,463) $ (522)
Fed funds purchased and repos 3,330 2,393 832 105
Other short-term borrowings 1,011 790 186 35
FHLB and other borrowings* 7,285 8,653 (963) (405)
--------- --------- --------- ---------
Increase in interest expense $17,816 $25,011 $(6,408) $ (787)
========= ========= ========= =========
</TABLE>
* Includes Capital Securities.
Noninterest Income and Noninterest Expense
During the second quarter of 1997, noninterest income increased $6.9
million, or 19 percent, to $42.6 million. This increase was due to a $4.3
million increase in other income, primarily a gain on sale of the Company's
corporate trust division of $2.6 million, a 24 percent increase in retail
investment sales income, and a $1.9 million, or 12 percent, increase in service
charges on deposit accounts. Similarly, noninterest income for the first six
months of 1997 increased 3 percent due to a 15 percent increase in service
charges on deposit accounts, a 27 percent increase in retail investment sales
income, and a 32 percent increase in other income. The increases in service
charges on deposit accounts were due to the increase in deposits while the
increases in retail investment sales income were due to the Company's continued
emphasis on increasing revenue in this area. The increase in noninterest income
for the first two quarters of 1997 was negatively impacted by the absence of
securities gains of $6.5 million realized in the first quarter of 1996 and
gains on the sale of branches of $2.3 million during the first six months of
1996. Excluding the aforementioned nonrecurring items, noninterest income
increased 13 percent in the second quarter of 1997 and the first six months of
the year. Investment securities losses for the second quarter were less than
$100,000 while trading account profits and commissions increased 10 percent to
$3.2 million. For the first six months of 1997, trading account profits
increased 6 percent to $7.4 million. Trading account profits for the first two
quarters of 1997 related specifically to derivative securities were
approximately $700,000, consisting of $393,000 of profits related to
collateralized mortgage obligations ("CMOs") held in the trading account and
$307,000 of profits on non-CMO derivative securities, specifically options,
futures, and interest rate swaps, caps, and floors.
The components of trading account assets at June 30, 1997, and December 31,
1996, are presented in the following table.
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
------------- -----------------
(in Thousands)
<S> <C> <C>
U.S. Treasury and Government agency $ 51,360 $ 44,797
State and political subdivisions 6,091 9,738
Mortgage-backed pass through securities 42,243 24,371
Other securities 828 727
Derivative securities:
Collateralized mortgage obligations 10,611 10,972
Interest rate floors and caps 281 787
Other options 131 60
----------- -----------
$ 111,545 $ 91,452
=========== ===========
</TABLE>
Noninterest expense increased $14.0 million, or 17 percent, during the
second quarter of 1997 and $25.2 million, or 15 percent, during the first six
months of 1997 over the same periods in 1996. Salaries increased $4.4 million,
or 11 percent, for the second quarter while employee benefits increased $1.0
million, or 13 percent. For the first two quarters of 1997, salaries increased
$10.2 million, or 14 percent, and employee benefits increased $3.1 million, or
21 percent. The increase in salaries over 1996 levels was the result of
purchase business combinations completed during the second and third quarters
of 1996 and normal business growth as well as regular merit increases and
increased 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 employee relocation expense. Net
occupancy expense increased 11 percent in the second quarter of 1997 and 12
percent during the first six months of the year due to increased rental expense
and other expenses associated with branches acquired in business combinations
completed during the second and third quarters of 1996 and normal business
growth. Other noninterest expense increased $9.2 million, or 19 percent, during
the first six months of 1997 and $6.8 million, or 27 percent, during the second
quarter of the year primarily due to increased amortization expense resulting
from increased intangibles related to acquisitions and litigation reserves of
$1.7 million.
Income Taxes
Income tax expense increased by $2.4 million, or 6 percent, during the first
six months of 1997 compared to the same period in 1996 due to the 5 percent
increase in pre-tax income. The effective tax rate for the first six months of
1997 was 36.3 percent, relatively unchanged from the 35.9 percent effective tax
rate for the same period in 1996.
Provision and Allowance for Loan Losses
The provision for loan losses for the six months ended June 30, 1997,
increased 11 percent from the same period in 1996 due to an 11 percent increase
in net loan charge-offs during the period. Net loan charge-offs expressed as
an annualized percentage of average loans for the first six months of 1997 was
0.25 percent, unchanged from the first six months of 1996. 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, 1997, was $121 million, unchanged from December 31, 1996. The ratio of the
allowance for loan losses to loans outstanding was 1.47 percent at June 30,
1997, down from 1.56 percent at December 31, 1996.
Nonperforming Assets and Past Due Loans
Nonperforming assets, comprised of nonaccrual loans, renegotiated loans and
other real estate owned, totaled $31.4 million at June 30, 1997, increasing 4
percent from $30.2 million at December 31, 1996, as nonaccrual loans increased
$1.7 million. At June 30, 1997, the allowance for loan losses as a percentage
of nonperforming loans was 512 percent as compared to 541 percent at December
31, 1996. The allowance for loan losses as a percentage of nonperforming loans
and accruing loans ninety days or more past due increased from 389 percent at
December 31, 1996, to 420 percent at June 30, 1997.
Nonperforming assets as a percentage of total loans and other real estate
owned decreased to 0.38 percent at June 30, 1997, from 0.39 percent at December
31, 1996. The amount recorded in other repossessed assets at June 30, 1997,
was $825,000, down from $850,000 at December 31, 1996. Loans past due ninety
days or more but still accruing interest decreased 40 percent from $8.7 million
at December 31, 1996, to $5.2 million at June 30, 1997, representing 0.06
percent of total loans and other real estate owned.
The Company regularly monitors selected accruing loans for which general
economic conditions or changes within a particular industry could cause the
borrowers financial difficulties. This continuous monitoring of the loan
portfolio and the related identification of loans with a high degree of credit
risk are essential parts of the Company's credit management. Management
continues to emphasize maintaining a low level of nonperforming assets and
returning current nonperforming assets to an earning status.
Financial Condition
Overview
Total assets at June 30, 1997, were $12.4 billion, up 2 percent from
December 31, 1996, as an increase in earning assets more than offset a decrease
in cash and due from banks. Retained earnings remained the primary source of
growth for the Company's capital base.
Assets and Funding
At June 30, 1997, earning assets totaled $11.5 billion, up from $11.1
billion at December 31, 1996, an increase of 4 percent. The mix of earning
assets shifted moderately toward loans in the first six months of 1997 with
loans comprising 71 percent of total earning assets at June 30, 1997, up from
70 percent at December 31, 1996, while the percentage of earning assets
represented by total investment securities decreased to 26 percent from 29
percent.
A $179 million decrease in total deposits and a $106 million decrease in
federal funds purchased and securities sold under agreements to repurchase
during the first two quarters of 1997 were more than offset by a $208 million
increase in FHLB and other borrowings, a $171 million increase in other short-
term borrowings and the issuance of $100 million of Capital Securities in
January, 1997. At June 30, 1997, deposits accounted for 76 percent of the
Company's funding, down from 79 percent at year end.
Liquidity and Capital Resources
Net cash provided by operating activities totaled $65 million for the six
months ended June 30, 1997. For the first six months of 1997, net cash used by
investing activities of $456 million consisted of proceeds from maturities of
investment securities of $173 million, proceeds from maturities of securities
available for sale of $294 million, proceeds from sales of securities available
for sale of $125 million and $22 million received in the purchase of a branch.
Cash outflows consisted of $294 million in purchases of investment securities
available for sale, $50 million in purchases of investment securities, a $523
million increase in loans outstanding, and a decrease in federal funds sold and
securities purchased under agreements to resell of $68 million. Net cash
provided by financing activities of $147 million consisted of the issuance of
Capital Securities, a $208 million net increase in FHLB and other borrowings,
and an increase in other short-term borrowings reduced by decreases in deposits
and federal funds purchased and the payment of $30 million in common stock
dividends.
Total shareholders' equity at June 30, 1997, was 7.12 percent of total
assets compared to 6.80 percent at December 31, 1996, due to earnings retained
after payment of dividends on common stock. During the first quarter of 1997
and 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 7.26
percent at June 30, 1997 and 6.15 percent at December 31, 1996. Similarly, the
Company's tangible leverage ratio, defined as period-end common equity adjusted
for all intangibles divided by average quarterly assets adjusted for all
intangibles, increased from 6.01 percent at December 31, 1996 to 7.13 percent
at June 30, 1997.
Tier I capital and total qualifying capital (Tier I capital plus Tier II
capital), as defined by regulatory agencies, as of June 30, 1997, 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, 1997,
were 9.88 percent and 12.52 percent, respectively, compared to 8.63 percent and
11.36 percent at December 31, 1996, with the increase due to the issuance of
the Capital Securities in the first quarter of 1997. 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 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
-------------------------
1997 1996
---------- ----------
<S> <C> <C>
ALLOWANCE FOR LOAN LOSSES
Balance at beginning of period $ 120,868 $ 113,195
Add: Provision charged to earnings 9,803 8,852
Balance due to acquisition - 4,917
Deduct: Loans charged off 12,761 11,445
Loan recoveries (3,098) (2,720)
---------- ----------
Net charge-offs 9,663 8,725
---------- ----------
Balance at end of period $ 121,008 $ 118,239
========== ==========
Net charge-offs as a percentage of
average loans (annualized) 0.25% 0.25%
Recoveries as a percentage of charge-offs 24.28% 23.77%
</TABLE>
<TABLE>
<CAPTION>
June 30 December 31
1997 1996
---------- -----------
<S> <C> <C>
NONPERFORMING ASSETS
Nonaccrual loans $ 21,442 $ 19,771
Renegotiated loans 2,178 2,591
---------- ----------
Total nonperforming loans 23,620 22,362
Other real estate 7,825 7,883
---------- ----------
Total nonperforming assets $ 31,445 $ 30,245
========== ==========
Accruing loans ninety days past due $ 5,196 $ 8,675
Other repossessed assets $ 825 $ 850
Allowance for loan losses $ 121,008 $ 120,868
Allowance as a percentage of loans 1.47% 1.56%
Total nonperforming loans as a percentage
of loans and ORE 0.29% 0.29%
Total nonperforming assets as a percentage
of loans and ORE 0.38% 0.39%
Accruing loans ninety days past due as a
percentage of loans and ORE 0.06% 0.11%
Allowance for loan losses as a percentage of
nonperforming loans 512.31% 540.51%
Allowance for loan losses as a percentage of
nonperforming assets 384.82% 399.63%
</TABLE>
<PAGE>
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION Page
- ------------------------------------------------------------------------- ----
Item 4 Submission of Matters to a Vote of Security Holders
The election of three directors and the approval of independent auditors
were submitted to a vote of shareholders at the Company's Annual Meeting
held April 21, 1997. William Eugene Davenport, Marshall Durbin, Jr., and
Robert J. Wright were elected upon receipt of the following votes
for/withheld, respectively, 30,197,566/452,338, 30,004,646/645,258, and
30,200,180/449,751. D. Paul Jones, Jr., Charles W. Daniel, George W.
Hansberry, M.D., Tranum Fitzpatrick, Jack C. Demetree, and John S. Stein
were not subject to reelection and their terms continued after the meeting.
KPMG Peat Marwick LLP was approved as independent auditors by a vote
for/against/withheld of 30,157,313/329,643/154,209.
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)
<PAGE>
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION Page
- ------------------------------------------------------------------------- ----
Item 6 Exhibits and Reports on Form 8-K (continued)
(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 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 13, 1997 /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
Six Months Ended June 30, 1997 and 1996
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
---------------------- -----------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
(in Thousands Except Per Share Data)
<S> <C> <C> <C> <C>
PRIMARY:
Weighted average shares
outstanding 64,243 62,799 64,200 63,421
Net effect of the assumed exercise
of stock options - based on the
treasury stock method using
average market price 796 313 726 283
---------- ---------- ---------- ----------
Total weighted average shares
and common stock equivalents
outstanding 65,039 63,112 64,926 63,704
========== ========== ========== ==========
Net income available
to common shareholders $ 37,597 $32,347 $ 73,673 $ 70,557
========== ========== ========== ==========
Net income per common share $ 0.58 $ 0.51 $ 1.13 $ 1.11
========== ========== ========== ==========
FULLY DILUTED:
Weighted average shares
outstanding 64,243 62,799 64,200 63,421
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 867 313 867 283
---------- ---------- ---------- ----------
Total weighted average shares and
common stock equivalents
outstanding 65,110 63,112 65,067 63,704
========== ========== ========== ==========
Net income $ 37,597 $32,347 $ 73,673 $ 70,557
========== ========== ========== ==========
Net income per common share $ 0.58 $ 0.51 $ 1.13 $ 1.11
========== ========== ========== ==========
</TABLE>
<TABLE>
Exhibit (12)
Compass Bancshares, Inc. and Subsidiaries
Ratio of Earnings to Fixed Charges
Six Months Ended June 30, 1997 and 1996
<CAPTION>
Six Months Ended
June 30
-------------------------
1997 1996
---------- ----------
(in Thousands)
<S> <C> <C>
Pretax income $ 115,619 $ 110,078
Add fixed charges:
Interest on deposits 169,319 163,129
Interest on borrowings 55,286 43,660
Portion of rental expense
representing interest expense 2,256 1,957
---------- ----------
Total fixed charges 226,861 208,746
---------- ----------
Income before fixed charges $ 342,480 $ 318,824
========== ==========
Pretax income $ 115,619 $ 110,078
Add fixed charges (excluding
interest on deposits):
Interest on borrowings 55,286 43,660
Portion of rental expense
representing interest expense 2,256 1,957
---------- ----------
Total fixed charges 57,542 45,617
---------- ----------
Income before fixed charges
(excluding interest on deposits) $ 173,161 $ 155,695
========== ==========
RATIO OF EARNINGS TO FIXED CHARGES:
Including interest on deposits 1.51x 1.53x
Excluding interest on deposits 3.01x 3.41x
</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 JUNE 30,
1997 AND IF 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-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 480,620
<INT-BEARING-DEPOSITS> 495
<FED-FUNDS-SOLD> 130,380
<TRADING-ASSETS> 111,545
<INVESTMENTS-HELD-FOR-SALE> 1,943,347
<INVESTMENTS-CARRYING> 1,110,495
<INVESTMENTS-MARKET> 1,118,903
<LOANS> 8,249,794
<ALLOWANCE> 121,008
<TOTAL-ASSETS> 12,449,291
<DEPOSITS> 9,411,166
<SHORT-TERM> 1,074,275
<LIABILITIES-OTHER> 68,507
<LONG-TERM> 1,009,185
0
0
<COMMON> 128,540
<OTHER-SE> 757,618
<TOTAL-LIABILITIES-AND-EQUITY> 12,449,291
<INTEREST-LOAN> 349,309
<INTEREST-INVEST> 105,681
<INTEREST-OTHER> 5,326
<INTEREST-TOTAL> 457,316
<INTEREST-DEPOSIT> 169,319
<INTEREST-EXPENSE> 224,605
<INTEREST-INCOME-NET> 232,711
<LOAN-LOSSES> 9,803
<SECURITIES-GAINS> (163)
<EXPENSE-OTHER> 190,226
<INCOME-PRETAX> 115,619
<INCOME-PRE-EXTRAORDINARY> 73,673
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 76,673
<EPS-PRIMARY> 1.13
<EPS-DILUTED> 1.13
<YIELD-ACTUAL> 4.21
<LOANS-NON> 21,442
<LOANS-PAST> 5,196
<LOANS-TROUBLED> 2,178
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 120,868
<CHARGE-OFFS> 12,761
<RECOVERIES> 3,098
<ALLOWANCE-CLOSE> 121,008
<ALLOWANCE-DOMESTIC> 121,008
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
