SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Period Ended March 31, 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 April 30, 1997
-------------------------- -----------------------------
Common Stock, $2 Par Value 64,242,434
The number of pages of this report is 19.
<PAGE>
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION Page
- -------------------------------------------------------------------- ----
Item 1 Financial Statements
Consolidated Balance Sheets as of March 31, 1997 and
December 31, 1996 3
Consolidated Statements of Income for the Three Months Ended
March 31, 1997 and 1996 4
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 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 15
Item 6 Exhibits and Reports on Form 8-K 15
<PAGE>
<TABLE>
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In Thousands)
(Unaudited)
<CAPTION>
March 31 December 31
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 487,252 $ 723,299
Federal funds sold and securities purchased
under agreements to resell 90,409 55,055
Interest bearing deposits with other banks 493 491
Investment securities (market value of
$1,128,968 and $1,121,347 for 1997 and
1996, respectively) 1,131,815 1,114,187
Investment securities available for sale 1,985,798 2,069,307
Trading account securities 94,102 91,452
Loans, net of unearned income 7,922,442 7,704,905
Allowance for loan losses (120,773) (120,655)
------------ ------------
Net loans 7,801,669 7,584,250
Premises and equipment, net 272,322 258,673
Other assets 257,318 256,416
------------ ------------
Total assets $12,121,178 $12,153,130
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest bearing $ 1,691,609 $ 1,843,750
Interest bearing 7,575,421 7,689,029
------------ ------------
Total deposits 9,267,030 9,532,779
Federal funds purchased and securities
sold under agreements to repurchase 855,163 807,967
Other short-term borrowings 176,887 201,901
Accrued expenses and other liabilities 73,879 81,277
FHLB and other borrowings 799,216 701,470
Guaranteed preferred beneficial interests
in Company's junior subordinated
deferrable interest debentures 100,000 -
------------ ------------
Total liabilities 11,272,175 11,325,394
Shareholders' equity:
Common stock of $2 par value:
Authorized--100,000,000 shares;
Issued--63,904,803 shares in 1997 and
41,605,238 shares in 1996 127,810 84,988
Surplus 80,053 69,752
Loans to finance stock purchases (4,946) (6,026)
Unearned restricted stock (3,646) (1,080)
Net unrealized holding loss on
available-for-sale securities (11,463) (2,882)
Retained earnings 661,195 682,984
------------ ------------
Total shareholders' equity 849,003 827,736
------------ ------------
Total liabilities and shareholders'
equity $12,121,178 $12,153,130
============= =============
</TABLE>
<PAGE>
<TABLE>
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(In Thousands Except Per Share Data)
(Unaudited)
<CAPTION>
Three Months Ended
March 31
-----------------------
1997 1996
---------- ----------
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans $167,065 $148,824
Interest and dividends on
investment securities 20,819 12,621
Interest on investment
securities available
for sale 31,969 36,562
Interest on trading account
securities 1,488 2,013
Interest on federal funds
sold and securities
purchased under agreements
to resell 921 1,641
Interest on interest bearing
deposits with other banks 12 29
---------- ----------
Total interest income 222,274 201,690
INTEREST EXPENSE:
Interest on deposits 83,662 79,468
Interest on federal funds
purchased and securities
sold under agreements to
repurchase 9,815 10,633
Interest on other short
-term borrowings 2,172 1,513
Interest on FHLB and other
borrowings 11,454 10,314
Interest on guaranteed preferred
beneficial interests in
Company's junior subordinated
deferrable interest debentures 1,623 -
---------- ----------
Total interest expense 108,726 101,928
---------- ----------
Net interest income 113,548 99,762
Provision for loan losses 5,324 3,584
---------- ----------
Net interest income
after provision for
loan losses 108,224 96,178
NONINTEREST INCOME:
Service charges on deposit
accounts 17,038 14,536
Trust fees 3,844 4,400
Trading account profits and
commissions 4,227 4,127
Investment securities
gains (losses), net (79) 6,688
Retail investment sales 4,045 3,103
Gain on sale of branches - 2,161
Other 11,046 9,240
---------- ----------
Total noninterest income 40,121 44,255
NONINTEREST EXPENSE:
Salaries and benefits 51,249 43,219
Net occupancy expense 7,269 6,399
Equipment expense 6,255 5,865
FDIC insurance premium 267 722
Other 26,658 24,307
---------- ----------
Total noninterest expense 91,698 80,512
---------- ----------
Net income before income
tax expense 56,647 59,921
Income tax expense 20,686 21,797
---------- ----------
NET INCOME $ 35,961 $ 38,124
========== ==========
NET INCOME PER COMMON SHARE $0.56 $0.60
Weighted average shares
outstanding 64,564 63,995
Dividends per common share $0.2367 $0.2133
</TABLE>
<PAGE>
<TABLE>
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
<CAPTION>
Three Months Ended
March 31
------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Operating Activities:
Net income $ 35,961 $ 38,124
Adjustments to reconcile net income to
cash provided by operations:
Depreciation and amortization 9,859 8,602
Accretion of discount and loan fees (2,965) (4,501)
Provision for loan losses 5,324 3,584
Net change in trading account securities (2,650) 20,566
Net change in mortgage loans available
for sale 10,627 (5,960)
(Gain) loss on sale of investment securities 79 (6,688)
(Gain) loss on sale of premises and equipment (62) 71
Gain on sale of other real estate owned (8) (46)
Provision for losses on other real estate
owned 80 99
Gain on sale of branches - (2,161)
(Increase) decrease in interest receivable (3,342) 6,039
Decrease in other assets 1,564 1,761
Decrease in interest payable (3,336) (4,827)
Increase in taxes payable 23,700 19,891
Decrease in other payables (22,682) (1,389)
------------ ------------
Net cash provided by operating activities 52,149 73,165
Investing Activities:
Proceeds from maturities/calls of investment
securities 81,556 53,759
Purchases of investment securities - (593)
Proceeds from sales of securities
available for sale 44,068 277,886
Proceeds from maturities/calls of
securities available for sale 114,665 199,230
Purchases of securities available for sale (188,396) (488,761)
Net increase in federal funds
sold and securities purchased
under agreements to resell (35,354) (11,588)
Net increase in loan portfolio (231,927) (63,060)
Purchase (divestiture) of branches 22,216 (46,663)
Purchases of premises and equipment (18,859) (5,083)
Net (increase) decrease in interest bearing
deposits with other banks (2) 392
Proceeds from sales of other
real estate owned 1,551 465
------------ ------------
Net cash used by investing activities (210,482) (84,016)
</TABLE>
<PAGE>
<TABLE>
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
<CAPTION>
Three Months Ended
March 31
-----------------------------
1997 1996
------------ ------------
<S> <C> <C>
Financing Activities:
Net increase (decrease) in demand deposits,
NOW accounts and savings accounts $ (110,019) $ 126,465
Net increase (decrease) in time deposits (181,195) 7,686
Net increase (decrease) in federal funds
purchased 29,281 (228,463)
Net increase (decrease) in securities sold
under agreements to repurchase 17,915 (24,813)
Net decrease in short-term
borrowings (25,014) (9,637)
Issuance of FHLB advances and
other borrowings 200,000 25,000
Repayment of long-term debt (102,278) (248)
Issuance of guaranteed preferred beneficial
interests in Company's junior subordinated
deferrable interest debentures 100,000 -
Purchase of treasury shares (52) (134)
Common dividends paid (15,124) (12,373)
Exercise of stock options of acquired
entities prior to acquisition 6,474 -
Repayment of loans to finance stock
purchases 1,605 1,162
Proceeds from exercise of stock options 693 1,950
------------ ------------
Net cash used by financing activities (77,714) (113,405)
------------ ------------
Net decrease in cash and due from banks (236,047) (124,256)
Cash and due from banks at beginning of period 723,299 627,060
------------ ------------
Cash and due from banks at end of period $ 487,252 $ 502,804
============ ============
Schedule of noncash investing and
financing activities:
Transfers of loans to other real estate owned $ 2,540 $ 994
Loans to facilitate the sale of
other real estate owned 239 760
Loans to finance stock purchases 525 1,438
Tax benefit realized upon exercise
of stock options 178 56
Issuance of restricted stock 2,706 1,296
Change in unrealized gain/loss on available
for sale securities (14,370) (25,488)
Transfer of securities available for
sale to held-to-maturity securities 98,658 -
Issuance of treasury stock upon exercise
of stock options 52 134
Acquisitions (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)
============ ============
</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, 1996.
NOTE 2 - 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, after giving effect to the
Company's April 2, 1997 3-for-2 stock split. 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, after giving effect to the Company's April 2, 1997 3-for-2 stock split.
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 will be restated in the second quarter of 1997.
On March 14, 1997, the Company signed a definitive agreement to acquire
Central Texas Bancorp, Inc. ("Central Texas"), and its subsidiary, Texas
National Bank of Waco, of Waco, Texas. At March 31, 1997, Central Texas had
assets of $215 million and equity of $18 million. It is anticipated that the
transaction will close in the second quarter of 1997 and will be accounted for
under the pooling-of-interests method of accounting.
NOTE 3 - Impaired Loans
At March 31, 1997, the recorded investment in loans that are considered
impaired under generally accepted accounting principles was $23.3 million, of
which $7.1 million were on nonaccrual status. Included in this amount is $23.2
million of impaired loans for which the related allowance for loan losses was
$4.6 million and $172,000 of loans that have no related allowance for loan
losses. At December 31, 1996, impaired loans totaled $25.7 million.
<PAGE>
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements - Continued
NOTE 4 - Issuance of Capital Securities
In December, 1996, a statutory business trust ("Compass Trust I") was
created by the Company which in January, 1997, issued guaranteed preferred
beneficial interests in the Company's junior subordinated deferrable interest
debentures ("Capital Securities") to institutional investors in the amount of
$100 million representing guaranteed preferred beneficial interests in $103.1
million in junior subordinated deferrable interest debentures ("Subordinated
Debentures") issued by the Company to Compass Trust I. The Capital Securities
bear an interest rate of 8.23 percent and are mandatorily redeemable by Compass
Trust I upon the repayment of the Subordinated Debentures by the Company. For
regulatory purposes, the Capital Securities will be treated as Tier I capital
of the Company. The Subordinated Debentures are the sole assets of Compass
Trust I and bear an interest rate of 8.23 percent with a maturity date of
January 15, 2027, which may be shortened to a date not earlier than January 15,
2007. If the Subordinated Debentures are redeemed in whole or in part prior to
January 15, 2007, the redemption price of the Subordinated Debentures and the
Capital Securities will include a premium ranging from 4.12 percent in 2007 to
0.41 percent in 2016.
NOTE 5 - Stock Split
On February 18, 1997, the Company announced a three-for-two stock split that
was effected in the form of a 50 percent stock dividend on April 2, 1997, to
shareholders of record as of March 17, 1997. Stockholders' equity at March 31,
1997, as presented in the Consolidated Balance Sheets, reflects the issuance of
21,301,605 shares of the Company's common stock issued on April 2, 1997. Per
share information for all periods presented in the Company's Consolidated
Statements of Income has been restated to reflect the stock split in accordance
with generally accepted accounting principles.
NOTE 6 - 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 March 31, 1997, decreased 6 percent to
$36.0 million during the first quarter of 1997 while net income per common
share decreased 7 percent to $0.56 from the first quarter of 1996. Excluding
securities gains and losses in the first quarter of 1997 and 1996 and the gain
of sale of a branch in the first quarter of 1996, net income increased from
$32.5 million to $36.0 million, an increase of 11 percent, while net income per
share increased from $0.51 in 1996 to $0.56 in 1997, a 10 percent increase. Net
interest income increased 14 percent to $113.5 million from the first quarter
of 1996 to the first quarter of 1997 while the provision for loan losses
increased 49 percent to $5.3 million. Noninterest income decreased 9 percent to
$40.1 million during the first quarter while noninterest expense increased 14
percent to $91.7 million. Excluding the aforementioned securities gains and
losses and the gain on sale of branches, noninterest income increased 14
percent. 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, after giving effect to the
Company's April 2, 1997 3-for-2 stock split. 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, after giving effect to the Company's
April 2, 1997 3-for-2 stock split. 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 1996 Form 10-K.
Net Interest Income
Net interest income for the quarter ended March 31, 1997, increased $13.8
million over the first quarter of 1996 to $113.5 million. On a tax-equivalent
basis, net interest income increased $13.8 million, or 14 percent, as a result
of a $20.6 million, or 10 percent, increase in interest income on a tax-
equivalent basis and a $6.8 million, or 7 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 12 percent, which more than offset a
4 basis point decline in the average yield on earning assets from 8.25 percent
to 8.21 percent. The largest portion of the increase in average earning assets
occurred in the average balance of loans, which increased 14 percent, or $961
million, and in total investment securities which increased $260 million. These
increases were funded primarily by increases in savings deposits.
Interest expense for the quarter ended March 31, 1997, increased by $6.8
million, or 7 percent, from the first quarter of 1996, due principally to a 12
percent increase in total interest bearing liabilities partially coupled with
an 18 basis point decrease in the rate paid on liabilities. The majority of the
increase in interest bearing liabilities was due to a $815 million, or 12
percent, increase in deposits. Similarly, the decrease in the rate paid on
interest bearing liabilities was primarily a function of a 24 basis point
decrease in the rate paid on deposits. The average balance of long-term
borrowings increased $187 million, or 30 percent, during the first 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"). See Note 4 - Issuance of Capital Securities in the
Notes to the Consolidated Financial Statements.
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 quarter of 1997, the net interest
margin, on a tax-equivalent basis, was 4.21 percent compared to 4.10 percent
for the same period in 1996. This 11 basis point increase resulted from the
changes in rates and volumes of earning assets and the corresponding funding
sources noted previously. While the rate paid on interest earning assets
declined 4 basis points, including an 8 basis point decrease in the yield on
loans, the yield on interest bearing liabilities decreased 18 basis points. The
impact of the decline in the yield on interest bearing liabilities on net
interest margin was further magnified by a 12 percent increase in the average
balance of noninterest bearing demand deposits. During the first 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 three basis points as compared to no impact for the same
period in 1996.
The following table details the components of the changes in net
interest income (on a tax-equivalent basis) by major category of interest
earning assets and interest bearing liabilities for the three months ended
March 31, 1997, as compared to the comparable period of 1996 (in thousands):
<TABLE>
<CAPTION>
Three Months Ended March 31
-------------------------------------------
Change
1997 Attributed to
to --------------------------------
1996 Volume Rate Mix
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Interest income:
Loans $ 18,227 $ 21,198 $ (2,601) $ (370)
Investment securities 8,199 8,673 (287) (187)
Investment securities available
for sale (4,590) (3,422) (1,289) 121
Trading account securities (519) (348) (207) 36
Fed funds and resale agreements (719) (731) 22 (10)
Time deposits in other banks (17) (19) 6 (4)
--------- --------- --------- ---------
Increase in interest income $ 20,581 $ 25,351 $ (4,356) $ (414)
========= ========= ========= =========
Interest expense:
Deposits $ 4,194 $ 9,556 $ (4,787) $ (575)
Fed funds purchased and repos (818) (807) (12) 1
Other short-term borrowings 659 538 89 32
FHLB and other borrowings* 2,763 3,131 (282) (86)
--------- --------- --------- ---------
Increase in interest expense $ 6,798 $12,418 $ (4,992) $ (628)
========= ========= ========= =========
* Includes Capital Securities.
</TABLE>
Noninterest Income and Noninterest Expense
During the first quarter of 1997, noninterest income decreased $4.1 million,
or 9 percent, to $40.1 million. This decrease was primarily due to the absence
in the first quarter of 1997 of securities gains of $6.7 million and gains on
the sale of branches of $2.2 million that were reflected in noninterest income
during the first quarter of 1996. Excluding these items, noninterest income
increased 14 percent, or $4.8 million. Service charges on deposit accounts
increased $2.5 million, or 17 percent, while retail investment sales income
increased $942,000, or 30 percent. The increase in service charges on deposit
accounts results from the increase in deposits due in part to acquisitions
completed by the Company during the second and third quarters of 1996. Retail
investment sales income increased due to the Company's continued emphasis on
increasing revenue in this area. Investment securities losses for the first
quarter were less than $100,000 while trading account profits and commissions
increased only 2 percent to $4.2 million. For the first three months of 1997,
trading account profits related specifically to derivative securities were
approximately $227,000, consisting of $94,000 of profits related to
collateralized mortgage obligations ("CMOs") held in the trading account and
$133,000 of profits on non-CMO derivative securities, specifically options,
futures, and interest rate swaps, caps, and floors. Other noninterest income
increased 20 percent during the first quarter of 1997 due to increased service
charges and fees on credit cards and increased gains on loan settlements.
The components of trading account assets at March 31, 1997, and December 31,
1996, are presented in the following table.
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
-------------- -----------------
(in Thousands)
<S> <C> <C>
U.S. Treasury and Government agency $ 33,992 $ 44,797
State and political subdivisions 7,825 9,738
Mortgage-backed pass through securities 43,584 24,371
Other securities 969 727
Derivative securities:
Collateralized mortgage obligations 7,221 10,972
Interest rate floors and caps 435 787
Other options 76 60
----------- -----------
$ 94,102 $ 91,452
=========== ===========
</TABLE>
Noninterest expense increased $11.2 million, or 14 percent, during the first
quarter of 1997 over the same period in 1996. Salaries increased $5.8 million,
or 16 percent, for the first quarter while employee benefits increased $2.2
million, or 31 percent. The increase in salaries over 1996 levels was the
result of business combinations completed during the second and third quarters
of 1996 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 first quarter of 1997 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. During the first three months of 1997, other
noninterest expense increased $2.4 million, or 10 percent, primarily due to
increased amortization expense resulting from increased intangibles related to
acquisitions.
Income Taxes
Income tax expense decreased by $1.1 million, or 5 percent, during the first
quarter of 1997 compared to the same period in 1996 due to the 5 percent
decrease in pre-tax income. The effective tax rate for the first three months
of 1997 was 36.5 percent, relatively unchanged from the 36.4 percent effective
tax rate for the same period in 1996.
Provision and Allowance for Loan Losses
The provision for loan losses for the three months ended March 31, 1997,
increased 49 percent from the same period in 1996 due to a 47 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 quarter of 1997 was
0.27 percent compared with 0.21 percent for the first three 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 March 31, 1997, was $121 million, unchanged from December 31, 1996.
The ratio of the allowance for loan losses to loans outstanding was 1.52
percent at March 31, 1997, down from 1.57 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 $28.7 million at March 31, 1997, down from
$29.4 million at December 31, 1996, a decline of 2 percent, as nonaccrual loans
decreased $1.1 million. At March 31, 1997, the allowance for loan losses as a
percentage of nonperforming loans was 590 percent as compared to 550 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 394 percent at December 31, 1996, to 443 percent at March 31, 1997.
Nonperforming assets as a percentage of total loans and other real estate
owned decreased to 0.36 percent at March 31, 1997, from 0.38 percent at
December 31, 1996. The amount recorded in other repossessed assets at March
31, 1997, was $1.2 million, up from $846,000 at December 31, 1996. Loans past
due ninety days or more but still accruing interest decreased 22 percent from
$8.7 million at December 31, 1996, to $6.8 million at March 31, 1997,
representing 0.09 percent of total loans and other real estate owned.
The Company regularly monitors selected accruing loans for which general
economic conditions or changes within a particular industry could cause the
borrowers financial difficulties. This continuous monitoring of the loan
portfolio and the related identification of loans with a high degree of credit
risk are essential parts of the Company's credit management. Management
continues to emphasize maintaining a low level of nonperforming assets and
returning current nonperforming assets to an earning status.
Financial Condition
Overview
Total assets at March 31, 1997, were $12.1 billion, down slightly from
December 31, 1996, as an increase in earning assets was more than offset by 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 March 31, 1997, earning assets totaled $11.2 billion, up from $11.0
billion at December 31, 1996, an increase of 2 percent. The mix of earning
assets shifted moderately toward loans in the first three months of 1997 with
loans comprising 71 percent of total earning assets at March 31, 1997, up from
70 percent at December 31, 1996, while the percentage of earning assets
represented by total investment securities decreased to 28 percent from 29
percent.
A $266 million decrease in total deposits during the first quarter of 1997
more than offset a $98 million increase in FHLB and other borrowings and the
issuance of $100 million of Capital Securities in January, 1997. At March 31,
1997, deposits accounted for 76 percent of the Company's funding, down from 78
percent at year end.
Liquidity and Capital Resources
Net cash provided by operating activities totaled $52 million for the three
months ended March 31, 1997. For the first three months of 1997, net cash used
by investing activities of $210 million consisted of proceeds from maturities
of investment securities of $82 million, proceeds from maturities of securities
available for sale of $115 million, proceeds from sales of securities available
for sale of $44 million and $22 million received in the purchase of a branch.
Cash outflows consisted of $188 million in purchases of investment securities
available for sale, a $232 million increase in loans outstanding, and a
decrease in federal funds sold and securities purchased under agreements to
resell of $35 million. Net cash used by financing activities of $78 million
consisted of the issuance of Capital Securities and a $98 million net increase
in FHLB and other borrowings reduced by decreases in deposits and other short-
term borrowings and the payment of $15 million in common stock dividends.
Total shareholders' equity at March 31, 1997, was 7.00 percent of total
assets compared to 6.81 percent at December 31, 1996, due to earnings retained
after payment of dividends on common stock partially offset by a $9 million
increase in the net unrealized loss on available-for-sale securities. 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 March 31, 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 7.12
percent at March 31, 1997.
Tier I capital and total qualifying capital (Tier I capital plus Tier II
capital), as defined by regulatory agencies, as of March 31, 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 March 31, 1997,
were 9.96 percent and 12.66 percent, respectively, compared to 8.62 percent and
11.36 percent at December 31, 1996, with the increase due to the issuance of
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>
Three Months Ended
March 31
-------------------------
1997 1996
---------- ----------
<S> <C> <C>
ALLOWANCE FOR LOAN LOSSES
Balance at beginning of period $ 120,655 $ 113,061
Add: Provision charged to earnings 5,324 3,584
Balance due to acquisition/(divestitures) - (107)
Deduct: Loans charged off 6,767 4,661
Loan recoveries (1,561) (1,122)
---------- ----------
Net charge-offs 5,206 3,539
---------- ----------
Balance at end of period $ 120,773 $ 112,999
========== ==========
Net charge-offs as a percentage of
average loans (annualized) 0.27% 0.21%
Recoveries as a percentage of charge-offs 23.07% 24.07%
</TABLE>
<TABLE>
<CAPTION>
March 31 December 31
1997 1996
----------- -----------
<S> <C> <C>
NONPERFORMING ASSETS
Nonaccrual loans $ 18,270 $ 19,404
Renegotiated loans 2,204 2,517
----------- -----------
Total nonperforming loans 20,474 21,921
Other real estate 8,202 7,487
----------- -----------
Total nonperforming assets $ 28,676 $ 29,408
=========== ===========
Accruing loans ninety days past due $ 6,776 $ 8,670
Other repossessed assets $ 1,199 $ 846
Allowance for loan losses $ 120,773 $ 120,655
Allowance as a percentage of loans 1.52% 1.57%
Total nonperforming loans as a percentage
of loans and ORE 0.26% 0.28%
Total nonperforming assets as a percentage
of loans and ORE 0.36% 0.38%
Accruing loans ninety days past due as a
percentage of loans and ORE 0.09% 0.11%
Allowance for loan losses as a percentage of
nonperforming loans 589.88% 550.41%
Allowance for loan losses as a percentage of
nonperforming assets 421.16% 410.28%
</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 18
(12) Ratio of Earnings to Fixed Charges 19
(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.
May 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
Three Months Ended March 31, 1997 and 1996
<CAPTION>
Three Months Ended
March 31
------------------------
1997 1996
---------- ----------
(in Thousands Except Per Share Data)
<S> <C> <C>
PRIMARY:
Weighted average shares outstanding 63,833 63,593
Net effect of the assumed exercise
of stock options - based on the
treasury stock method using
average market price 731 402
---------- ----------
Total weighted average shares
and common stock equivalents
outstanding 64,564 63,995
========== ==========
Net income available
to common shareholders $ 35,961 $ 38,124
========== ==========
Net income per common share $ 0.56 $ 0.60
========== ==========
FULLY DILUTED:
Weighted average shares outstanding 63,833 63,593
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 768 402
---------- ----------
Total weighted average shares and
common stock equivalents
outstanding 64,601 63,995
========== ==========
Net income $ 35,961 $ 38,124
========== ==========
Net income per common share $ 0.56 $ 0.60
========== ==========
</TABLE>
<TABLE>
Exhibit (12)
Compass Bancshares, Inc. and Subsidiaries
Ratio of Earnings to Fixed Charges
Three Months Ended March 31, 1997 and 1996
<CAPTION>
Three Months Ended
March 31
-------------------------
1997 1996
---------- ----------
(in Thousands)
<S> <C> <C>
Pretax income $ 56,647 $ 59,921
Add fixed charges:
Interest on deposits 83,662 79,468
Interest on borrowings 25,064 22,460
Portion of rental expense
representing interest expense 1,098 966
---------- ----------
Total fixed charges 109,824 102,894
---------- ----------
Income before fixed charges $ 166,471 $ 162,815
========== ==========
Pretax income $ 56,647 $ 59,921
Add fixed charges (excluding
interest on deposits):
Interest on borrowings 25,064 22,460
Portion of rental expense
representing interest expense 1,098 966
---------- ----------
Total fixed charges 26,162 23,426
---------- ----------
Income before fixed charges
(excluding interest on deposits) $ 82,809 $ 83,347
========== ==========
RATIO OF EARNINGS TO FIXED CHARGES:
Including interest on deposits 1.52x 1.58x
Excluding interest on deposits 3.17x 3.56x
</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 MARCH 31,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
AND RELATED SUPPLEMENTAL SCHEDULES.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 487,252
<INT-BEARING-DEPOSITS> 493
<FED-FUNDS-SOLD> 90,409
<TRADING-ASSETS> 94,102
<INVESTMENTS-HELD-FOR-SALE> 1,985,798
<INVESTMENTS-CARRYING> 1,131,815
<INVESTMENTS-MARKET> 1,128,968
<LOANS> 7,922,442
<ALLOWANCE> 120,773
<TOTAL-ASSETS> 12,121,178
<DEPOSITS> 9,267,030
<SHORT-TERM> 1,032,050
<LIABILITIES-OTHER> 73,879
<LONG-TERM> 899,216
0
0
<COMMON> 127,810
<OTHER-SE> 721,193
<TOTAL-LIABILITIES-AND-EQUITY> 12,121,178
<INTEREST-LOAN> 167,065
<INTEREST-INVEST> 52,788
<INTEREST-OTHER> 2,421
<INTEREST-TOTAL> 222,274
<INTEREST-DEPOSIT> 83,662
<INTEREST-EXPENSE> 108,726
<INTEREST-INCOME-NET> 113,548
<LOAN-LOSSES> 5,324
<SECURITIES-GAINS> (79)
<EXPENSE-OTHER> 91,698
<INCOME-PRETAX> 56,647
<INCOME-PRE-EXTRAORDINARY> 35,961
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 35,961
<EPS-PRIMARY> 0.56
<EPS-DILUTED> 0.56
<YIELD-ACTUAL> 4.21
<LOANS-NON> 18,270
<LOANS-PAST> 6,776
<LOANS-TROUBLED> 2,204
<LOANS-PROBLEM> 0<F1>
<ALLOWANCE-OPEN> 120,655
<CHARGE-OFFS> 6,767
<RECOVERIES> 1,561
<ALLOWANCE-CLOSE> 120,773
<ALLOWANCE-DOMESTIC> 120,773
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0<F1>
<FN>
<F1>Information is not required to be disclosed in interim filings with the
Commission.
</FN>
</TABLE>
