SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Period Ended September 30, 1998 Commission File No. 0-6032
COMPASS BANCSHARES, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 63-0593897
------------------------ ------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
15 South 20th Street
Birmingham, Alabama 35233
----------------------------------------
(Address of principal executive offices)
(205) 933-3000
-------------------------------
(Registrant's telephone number)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $2 par value
--------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days:
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's class of
common stock, as of the latest practicable date.
Class Outstanding at October 31, 1998
-------------------------- -------------------------------
Common Stock, $2 Par Value 70,931,447
The number of pages of this report is 24.
<PAGE>
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION Page
- ---------------------------------------------------------------------- ----
Item 1 Financial Statements
Consolidated Balance Sheets as of September 30, 1998 and
December 31, 1997 3
Consolidated Statements of Income for the Three and Nine Months
Ended September 30, 1998 and 1997 4
Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 1998 and 1997 5
Consolidated Statements of Comprehensive Income for the Three and
Nine Months Ended September 30, 1998 and 1997 7
Notes to Consolidated Financial Statements 8
Item 2 Management's Discussion and Analysis of Results of Operations
and Financial Condition 11
Item 3 Quantitative and Qualitative Disclosures About Market Risk 20
PART II. OTHER INFORMATION
- ----------------------------------------------------------------------
Item 1 Legal Proceedings 21
Item 6 Exhibits and Reports on Form 8-K 21
<PAGE>
<TABLE>
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In Thousands)
(Unaudited)
<CAPTION>
September 30 December 31
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 519,046 $ 745,959
Federal funds sold and securities purchased
under agreements to resell 49,628 143,624
Interest bearing deposits with other banks 693 1,008
Investment securities (market value of
$2,090,101 and $1,119,462 for 1998 and
1997, respectively) 2,053,404 1,100,458
Investment securities available for sale 2,860,952 2,438,757
Trading account securities 83,040 112,460
Loans, net of unearned income 8,954,974 9,011,158
Allowance for loan losses (124,266) (127,510)
------------ ------------
Net loans 8,830,708 8,883,648
Premises and equipment, net 334,722 313,699
Other assets 433,204 439,860
------------ ------------
Total assets $15,165,397 $14,179,473
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest bearing $ 2,206,825 $ 2,207,086
Interest bearing 8,436,513 8,070,617
------------ ------------
Total deposits 10,643,338 10,277,703
Federal funds purchased and securities
sold under agreements to repurchase 1,495,498 1,171,667
Other short-term borrowings 192,695 183,153
Accrued expenses and other liabilities 226,446 136,580
FHLB and other borrowings 1,383,014 1,294,653
Guaranteed preferred beneficial interests
in Company's junior subordinated
deferrable interest debentures (Note 4) 100,000 100,000
------------ ------------
Total liabilities 14,040,991 13,163,756
Shareholders' equity:
Common stock of $2 par value:
Authorized--200,000,000 shares;
Issued--70,906,673 shares in 1998 and
70,518,704 shares in 1997 141,813 141,037
Surplus 120,923 113,386
Loans to finance stock purchases (3,070) (5,224)
Unearned restricted stock (3,974) (2,775)
Accumulated other comprehensive income --
net unrealized holding gain on
available-for-sale securities 20,446 827
Retained earnings 848,268 768,466
------------ ------------
Total shareholders' equity 1,124,406 1,015,717
------------ ------------
Total liabilities and shareholders'
equity $15,165,397 $14,179,473
============ ============
</TABLE>
<PAGE>
<TABLE>
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(In Thousands Except Per Share Data)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
---------------------- ----------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $199,063 $193,383 $594,986 $561,258
Interest and dividends on
investment securities 28,136 20,881 61,957 65,982
Interest on investment
securities available
for sale 44,341 35,782 125,917 104,820
Interest on trading account
securities 1,738 1,667 4,625 5,017
Interest on federal funds
sold and securities
purchased under agreements
to resell 663 1,826 3,604 5,294
Interest on interest bearing
deposits with other banks 8 33 41 108
---------- ---------- ---------- ----------
Total interest income 273,949 253,572 791,130 742,479
INTEREST EXPENSE:
Interest on deposits 95,082 93,877 281,497 274,712
Interest on federal funds
purchased and securities
sold under agreements to
repurchase 17,310 11,970 42,101 34,224
Interest on other short
-term borrowings 2,590 3,904 6,911 9,170
Interest on FHLB and other
borrowings 18,794 15,183 54,088 39,489
Interest on guaranteed
preferred beneficial
interests in Company's
junior subordinated
deferrable interest
debentures 2,058 2,057 6,173 5,738
---------- ---------- ---------- ----------
Total interest expense 135,834 126,991 390,770 363,333
---------- ---------- ---------- ----------
Net interest income 138,115 126,581 400,360 379,146
Provision for loan losses 7,417 7,201 21,660 17,677
---------- ---------- ---------- ----------
Net interest income
after provision for
loan losses 130,698 119,380 378,700 361,469
NONINTEREST INCOME:
Service charges on deposit
accounts 21,944 18,123 62,818 55,084
Trust fees 3,746 3,917 12,256 11,888
Trading account profits and
commissions 3,210 3,373 10,370 10,851
Investment securities
gains, net 1,794 4,300 3,811 4,136
Gain on sale of securitized
loans - - 4,264 -
Retail investment sales 5,250 4,297 14,713 12,600
Other 18,239 14,240 53,663 41,430
---------- ---------- ---------- ----------
Total noninterest income 54,183 48,250 161,895 135,989
NONINTEREST EXPENSE:
Salaries and benefits 61,116 55,445 177,676 165,580
Net occupancy expense 8,909 8,699 25,571 25,046
Equipment expense 9,226 8,016 26,098 22,717
Professional services 8,837 9,070 26,903 24,557
Other 25,960 23,694 79,153 73,083
---------- ---------- ---------- ----------
Total noninterest expense 114,048 104,924 335,401 310,983
---------- ---------- ---------- ----------
Net income before income
tax expense 70,833 62,706 205,194 186,475
Income tax expense 23,650 21,014 68,788 65,463
---------- ---------- ---------- ----------
NET INCOME $ 47,183 $ 41,692 $136,406 $121,012
========== ========== ========== ==========
BASIC EARNINGS PER SHARE $0.67 $0.59 $1.93 $1.72
DILUTED EARNINGS PER SHARE 0.66 0.59 1.91 1.71
Basic weighted average shares
outstanding 70,732 70,267 70,630 70,179
Diluted weighted average shares
outstanding 71,502 71,202 71,579 70,958
Dividends per common share $0.2625 $0.2367 $0.7875 $0.7100
</TABLE>
<PAGE>
<TABLE>
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
<CAPTION>
Nine Months Ended
September 30
-----------------------------
1998 1997
------------ -----------
<S> <C> <C>
Operating Activities:
Net income $ 136,406 $ 121,012
Adjustments to reconcile net income to
cash provided by operations:
Depreciation and amortization 35,268 32,975
Accretion of discount and loan fees (11,315) (10,176)
Provision for loan losses 21,660 17,677
Net change in trading account securities 29,420 (38,030)
Net change in mortgage loans available
for sale (17,246) 1,530
Gain on sale of securitized loans (4,264) -
Gain on sale of investment securities (3,811) (4,136)
(Gain) loss on sale of premises and
equipment 115 (9)
Gain on sale of other real estate owned (628) (292)
Provision for losses on other real estate
owned - 191
Increase in interest receivable (465) (12,260)
Increase in other assets (5,907) (164,064)
Increase (decrease) in interest payable (5,716) 2,962
Increase in taxes payable 19,283 2,829
Increase (decrease) in other payables 63,798 (17,048)
------------ -----------
Net cash provided by operating activities 256,598 (66,839)
Investing Activities:
Proceeds from maturities/calls of investment
securities 494,751 279,744
Purchases of investment securities (1,446,073) (114,373)
Proceeds from sales of securities
available for sale 655,762 490,790
Proceeds from maturities/calls of
securities available for sale 652,698 421,619
Purchases of securities available for sale (1,178,684) (807,327)
Net (increase) decrease in federal funds
sold and securities purchased
under agreements to resell 93,996 (30,906)
Net increase in loan portfolio (817,126) (690,682)
Sale of securitized loans 359,680 -
Purchase of branches - 22,216
Purchases of premises and equipment (42,105) (49,601)
Net decrease in interest
bearing deposits with other banks 315 473
Proceeds from sales of other
real estate owned 5,176 6,239
------------ -----------
Net cash used by investing activities (1,221,610) (471,808)
</TABLE>
<PAGE>
<TABLE>
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
<CAPTION>
Nine Months Ended
September 30
------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Financing Activities:
Net increase (decrease) in demand deposits,
NOW accounts and savings accounts $ 385,730 $ (59,373)
Net decrease in time deposits (20,095) (132,778)
Net increase in federal funds
purchased 253,785 71,981
Net increase in securities sold
under agreements to repurchase 70,046 56,197
Net increase in short-term
borrowings 9,542 59,314
Issuance of FHLB advances and
other borrowings 196,000 412,500
Repayment of FHLB advances and
other borrowings (107,707) (106,186)
Issuance of guaranteed preferred beneficial
interests in Company's junior subordinated
deferrable interest debentures - 100,000
Common dividends paid (55,405) (45,940)
Exercise of stock options of acquired
entities prior to acquisition 599 6,473
Payment of dividends by acquired entities
prior to acquisition (1,597) -
Repayment of loans to finance stock
purchases 4,784 2,499
Proceeds from exercise of stock options 2,417 2,820
------------ ------------
Net cash provided by
financing activities 738,099 367,507
------------ ------------
Net decrease in cash and due from banks (226,913) (171,140)
Cash and due from banks at beginning of period 745,959 759,760
------------ ------------
Cash and due from banks at end of period $ 519,046 $ 588,620
============ ============
Schedule of noncash investing and
financing activities:
Transfers of loans to other real estate owned $ 5,604 $ 5,754
Loans to facilitate the sale of
other real estate owned 415 667
Loans to finance stock purchases 2,630 1,122
Tax benefit realized upon exercise
of stock options 432 1,778
Issuance of restricted stock 3,113 2,706
Assets retained in loan securitization and
sale 36,593 -
Change in unrealized gain/loss on available
for sale securities 30,119 7,692
Transfer of securities available for
sale to held-to-maturity securities - 118,947
Securitization and tranfer of loans to
investment securities 484,549 -
Receipt of treasury stock upon exercise
of stock options 2,075 988
Issuance of treasury stock upon exercise
of stock options 2,075 988
Acquisition of branches:
Liabilities assumed $ 25,661
Assets acquired 3,445
------------
Net liabilities assumed $ 22,216
============
</TABLE>
<PAGE>
<TABLE>
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(In Thousands)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
--------------------- ----------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income $ 47,183 $ 41,692 $136,406 $121,012
Other comprehensive income,
before tax:
Unrealized holding
gain (loss) on
available for sale
securities, net 23,897 10,723 34,769 12,439
Less reclassification
adjustment for gains
(losses) on securities
available for sale 1,794 4,300 3,811 4,136
---------- ---------- ---------- ----------
Total other comprehensive
income, before tax 22,103 6,423 30,958 8,303
Income tax expense (benefit)
related to other
comprehensive income:
Unrealized holding
gain (loss) on
available for sale
securities, net 8,791 3,924 12,707 4,451
Less reclassification
adjustment for gains
(losses) on securities
available for sale 648 1,623 1,368 1,561
---------- ---------- ---------- ----------
Total income tax expense
(benefit) related
to other comprehensive
income 8,143 2,301 11,339 2,890
---------- ---------- ---------- ----------
Total other comprehensive
income, net of tax 13,960 4,122 19,619 5,413
---------- ---------- ---------- ----------
Total comprehensive income $ 61,143 $ 45,814 $156,025 $126,425
========== ========== ========== ==========
</TABLE>
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, 1997.
NOTE 2 - Business Combinations
Completed Acquisitions
Summarized below are acquisitions completed by the Company during the first
nine months of 1998. All of the acquisitions completed during the period were
accounted for under the pooling-of-interests method of accounting and
accordingly all prior period information has been restated.
<TABLE>
Common
dollars in millions Location Date Assets Equity Shares Issued
- ---------------------------- -------------------- ------- ------ ------ -------------
<S> <C> <C> <C> <C> <C>
G.S.B. Investments, Inc. Gainesville, Florida 1/13/98 $213 $22 1,649,807
First University Corporation Houston, Texas 1/29/98 68 4 349,874
Fidelity Resources Company Dallas, Texas 2/9/98 335 20 1,800,077
Hill Country Bank Austin, Texas 8/1/98 109 10 728,075
</TABLE>
Pending Acquisitions
On July 6, 1998, the Company signed a definitive agreement to acquire
Arizona Bank, of Tucson, Arizona. At September 30, 1998, Arizona Bank had
assets of $804 million and equity of $60 million. It is anticipated that the
transaction will close in the fourth quarter of 1998 and will be accounted for
under the pooling-of-interests method of accounting.
On November 2, 1998, the Company signed a definitive agreement to acquire 15
branches in Arizona from Norwest Bank and Wells Fargo Bank. These branches,
primarily in the Phoenix area, will add approximately $442 million in deposits.
The transaction is expected to close in the second quarter of 1999 and be
accounted for under the purchase method of accounting.
NOTE 3 - Impaired Loans
At September 30, 1998, the recorded investment in loans that are considered
impaired under generally accepted accounting principles was $46.8 million, of
which $33.6 million were on nonaccrual status. Included in this amount is $46.3
million of impaired loans for which the related allowance for loan losses was
$5.8 million and $500,000 of loans which are carried at estimated fair value
without a specifically allocated allowance for loan losses. At December 31,
1997, impaired loans totaled $23.8 million. The increase from year end was due
to the placement of one large energy credit on nonaccrual during the third
quarter of 1998.
<PAGE>
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements - Continued
NOTE 4 - Capital Securities
In January, 1997, the Company formed a wholly owned Delaware statutory
business trust, Compass Trust I, which issued $100 million of guaranteed
preferred beneficial interests in the Company's junior subordinated deferrable
interest debentures ("Capital Securities") that qualify as Tier I capital under
Federal Reserve Board guidelines. All of the common securities of Compass Trust
I are owned by the Company. The proceeds from the issuance of the Capital
Securities ($100 million) and common securities ($3.1 million) were used by
Compass Trust I to purchase $103.1 million of junior subordinated deferrable
interest debentures of the Company which carry an interest rate of 8.23
percent. The debentures represent the sole asset of Compass Trust I. The
debentures and related income statement effects are eliminated in the Company's
financial statements.
The Capital Securities accrue and pay distributions semiannually at a rate
of 8.23 percent per annum of the stated liquidation value of $1,000 per capital
security. The Company has entered into contractual arrangements which, taken
collectively, fully and unconditionally guarantee payment of: (i) accrued and
unpaid distributions required to be paid on the Capital Securities; (ii) the
redemption price with respect to any Capital Securities called for redemption
by Compass Trust I; and (iii) payments due upon a voluntary or involuntary
liquidation, winding-up or termination of Compass Trust I.
The Capital Securities are mandatorily redeemable upon the maturity of the
debentures on January 15, 2027, or upon earlier redemption as provided in the
indenture. The Company has the right to redeem the debentures purchased by
Compass Trust I: (i) in whole or in part, on or after January 15, 2007, and
(ii) in whole (but not in part) at any time within 90 days following the
occurrence and during the continuation of a tax event or capital treatment
event (as defined in the offering circular and indenture). As specified in the
indenture, if the debentures are redeemed prior to maturity, the redemption
price will be the principal amount, any accrued but unpaid interest, plus a
premium ranging from 4.12 percent in 2007 to 0.41 percent in 2016.
<PAGE>
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements - Continued
NOTE 5 - Earnings Per Share
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
--------------------- ----------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
(In Thousands Except Per Share Data)
(Unaudited)
<S> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE:
Weighted average shares
outstanding 70,732 70,267 70,630 70,179
========== ========== ========== ==========
Net income $ 47,183 $41,692 $136,406 $121,012
========== ========== ========== ==========
Basic earnings per share $ 0.67 $ 0.59 $ 1.93 $ 1.72
========== ========== ========== ==========
DILUTED EARNINGS PER SHARE:
Weighted average shares
outstanding 70,732 70,267 70,630 70,179
Net effect of the assumed
exercise of stock options
and nonvested restricted
stock - based on the
treasury stock method using
average market price for
the period 770 935 949 779
---------- --------- ---------- ----------
Total weighted average
shares and common
stock equivalents
outstanding 71,502 71,202 71,579 70,958
========== ========== ========== ==========
Net income $ 47,183 $41,692 $136,406 $121,012
========== ========== ========== ==========
Diluted earnings per share $ 0.66 $ 0.59 $ 1.91 $ 1.71
========== ========== ========== ==========
</TABLE>
NOTE 6 - Recently Issued Accounting Standards
In June, 1997, the FASB issued Financial Accounting Statement No. 131,
Disclosures about Segments of an Enterprise and Related Information,
("FAS131"). FAS131 requires that financial and descriptive information be
disclosed for each reportable operating segment based on the management
approach. The management approach focuses on financial information that an
enterprise's decision makers use to assess performance and make decisions
about resource allocation. The statement also prescribes the enterprise-wide
disclosures to be made about products, services, geographic areas and major
customers. FAS131 is effective for annual financial statements issued for
periods beginning after December 15, 1997, and for interim financial
statements in the second year of application. The Company adopted FAS131
as of January 1, 1998.
In June, 1998, the FASB issued Financial Accounting Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities, ("FAS133").
FAS133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. This Statement is
effective for all fiscal quarters of fiscal years beginning after June 15,
1999. Presently, the Company has not yet quantified the impact that the
adoption of FAS133 will have on the consolidated financial statements of the
Company.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
Overview
This report may contain forward-looking statements which are subject to
numerous assumptions, risks and uncertainties. Statements pertaining to future
periods are subject to uncertainty because of the possibility of changes in
underlying factors and assumptions. Actual results could differ materially from
those contained in or implied by such forward-looking statements for a variety
of factors including: sharp and/or rapid changes in interest rates; significant
changes in the economic scenario from the current anticipated scenario which
could materially change anticipated credit quality trends and the ability to
generate loans; significant delay in or inability to execute strategic
initiatives designed to grow revenues and/or control expenses; unforeseen
business risks related to Year 2000 computer systems issues; and significant
changes in accounting, tax, or regulatory practices or requirements.
Net income for the quarter ended September 30, 1998, increased 13 percent
from the third quarter of 1997 to $47.2 million while basic earnings per share
increased 14 percent to $0.67 per share and diluted earnings per share
increased 12 percent to $0.66 per share. Net interest income grew 9 percent to
$138.1 million from the third quarter of 1997 while the provision for loan
losses increased 3 percent to $7.4 million. Noninterest income increased 12
percent to $54.2 million during the third quarter of 1998 while noninterest
expense grew 9 percent to $114.0 million.
For the first nine months of 1998, net income increased 13 percent to $136.4
million while both basic and diluted earnings per share for the period
increased 12 percent, to $1.93 per share and $1.91 per share, respectively. For
the year-to-date period, net interest income grew by 6 percent to $400.4
million while the provision for loan losses increased by 23 percent to $21.7
million. Noninterest income and noninterest expense increased by 19 percent and
8 percent, respectively, over the prior year period.
All acquisitions completed in 1998 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 1998 and pending acquisitions are detailed in Note 2 - Business
Combinations in the Notes to the Consolidated Financial Statements and
acquisitions completed prior to 1998 are included in "Acquisitions" under Item
1 - Business in the Company's 1997 Form 10-K.
Net Interest Income
Net interest income for the quarter ended September 30, 1998, increased
$11.5 million over the third quarter of 1997 to $138.1 million. On a tax-
equivalent basis, net interest income grew by $11.3 million, or 9 percent, as a
result of a $20.2 million, or 8 percent, increase in interest income on a tax-
equivalent basis offset in part by an $8.8 million, or 7 percent, increase in
interest expense. The increase in interest income was primarily due to an
increase in average earning assets of $1.2 billion, or 10 percent, reduced by
the effect of a 13 basis point decrease in the average yield on earning assets
from 8.17 percent to 8.04 percent. The largest portion of the increase in
average earning assets from the third quarter of 1997 occurred in the average
balance of investment securities and investment securities available for sale,
which increased 38 percent and 22 percent, respectively, or $932 million in
total. This increase was due to the loan securitizations in the second and
third quarters and purchases of investment securities during the first nine
months of the year. The 7 percent increase in interest expense resulted from a
$946 million, or 9 percent, increase in the average balance of interest bearing
liabilities offset by a 9 basis point decrease in the rate paid.
While net interest income for the nine months ended September 30, 1998,
increased $21.2 million over the prior year period, on a tax-equivalent basis,
net interest income increased $20.6 million, or 5 percent. This increase was a
function of a $48.0 million, or 6 percent, increase in interest income and a
$27.4 million, or 8 percent, increase in interest expense. The increase in
interest income was due to an 8 percent, or $921 million, increase in average
earning assets for the nine month period while the average yield on earning
assets declined by 8 basis points to 8.12 percent. At the same time, average
interest bearing liabilities increased $775 million, primarily in savings
accounts and FHLB and other borrowings, while the rate paid on interest bearing
liabilities decreased 1 basis point to 4.75 percent.
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 third quarter of 1998, the net interest margin,
on a tax-equivalent basis, was 4.07 percent compared to 4.09 percent for the
same period in 1997. This change resulted from the changes in rates and volumes
of earning assets and the corresponding funding sources noted previously. The
yield on interest earning assets for the third quarter decreased 13 basis
points, including a 7 basis point decrease in the yield on loans, while the
yield on interest bearing liabilities decreased 9 basis points. The impact of
the decrease in the yield on interest bearing liabilities on net interest
margin was further magnified by an 11 percent increase in the average balance
of noninterest bearing demand deposits during the third quarter of 1998.
For the nine months ended September 30, 1998, the net interest margin
declined 9 basis points to 4.12 percent from the prior year period due to an 8
basis point decrease in yield on earning assets partially offset by a 1 basis
point decrease in the rate paid on interest bearing liabilities. The decrease
in yield on earning assets was principally due to a 9 basis point decrease in
the yield on loans from 8.82 percent to 8.73 percent. A two basis point
increase in the rate paid on interest bearing deposits, primarily savings
accounts, was more than offset by decreases in the rate paid on other short-
term borrowed funds and FHLB and other borrowings as the rate paid on total
interest bearing liabilities declined by one basis point. For the nine month
period, the rate paid on FHLB and other borrowings decreased from 6.40 percent
in 1997 to 5.74 percent in the current year.
During the third quarter of 1998, 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 7 basis points as compared to a 4
basis point impact for the same period in 1997. For the nine months ended
September 30, 1998, the use of interest rate contracts increased the Company's
taxable equivalent net interest margin by 8 basis points, up from the 4 basis
point impact for the first nine months of 1997.
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 nine month and three month periods
ended September 30, 1998, as compared to the comparable periods of 1997 (in
thousands):
<TABLE>
<CAPTION>
Nine Months Ended
September 30
--------------------------------------------
Change
1997 Attributed to
to --------------------------------
1998 Volume Rate Mix
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Interest income:
Loans $33,489 $39,806 $(5,899) $ (418)
Investment securities (4,366) (2,767) (1,667) 68
Investment securities available
for sale 21,073 20,666 341 66
Trading account securities (400) (323) (83) 6
Fed funds and resale agreements (1,690) (1,859) 260 (91)
Time deposits in other banks (67) (68) 2 (1)
--------- --------- --------- ---------
Increase in interest income $48,039 $55,455 $(7,046) $ (370)
========= ========= ========= =========
Interest expense:
Deposits $ 6,785 $ 3,671 $ 2,912 $ 202
Fed funds purchased and repos 7,877 7,405 388 84
Other short-term borrowings (2,259) (1,990) (343) 74
FHLB and other borrowings* 15,034 21,974 (4,670) (2,270)
--------- --------- --------- ---------
Increase in interest expense $27,437 $31,060 $(1,713) $(1,910)
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
September 30
--------------------------------------------
Change
1997 Attributed to
to --------------------------------
1998 Volume Rate Mix
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Interest income:
Loans $ 5,595 $ 7,332 $(1,674) $ (63)
Investment securities 7,124 8,302 (851) (327)
Investment securities available
for sale 8,576 7,887 565 124
Trading account securities 72 100 (25) (3)
Fed funds and resale agreements (1,164) (1,166) 7 (5)
Time deposits in other banks (25) (23) (7) 5
--------- --------- --------- ---------
Increase in interest income $20,178 $22,432 $(1,985) $ (269)
========= ========= ========= =========
Interest expense:
Deposits $ 1,205 $ 2,347 $(1,164) $ 22
Fed funds purchased and repos 5,340 5,132 146 62
Other short-term borrowings (1,314) (1,156) (225) 67
FHLB and other borrowings* 3,612 6,122 (1,852) (658)
--------- --------- --------- ---------
Increase in interest expense $ 8,843 $12,445 $(3,095) $ (507)
========= ========= ========= =========
<FN>
* Includes Capital Securities.
</FN>
</TABLE>
Noninterest Income and Noninterest Expense
During the third quarter of 1998, noninterest income increased $5.9 million,
or 12 percent, to $54.2 million, due primarily to a $3.8 million increase in
service charges on deposit accounts and a $4.0 million increase in other
income. For the nine months ended September 30, 1998, noninterest income
increased $25.9 million, or 19 percent, over the prior year period to $161.9
million. The primary components of this increase were a $4.3 million gain on
sale of securitized indirect automobile loans in the second quarter, a $7.7
million increase in service charges on deposit accounts, and a $12.2 million
increase in other income. The increases in service charges on deposit accounts
were due to growth in deposits and service charge fee increases while the
increases in other income were due to increased mortgage banking income and
increased income from tax-advantaged assets. Trading account profits and
commissions decreased 5 percent to $3.2 million in the third quarter of 1998
and declined 4 percent to $10.4 million during the first nine months of the
year. Trading account profits for the first nine months of 1998 related
specifically to derivative securities were approximately $0.9 million
consisting of $0.8 million of profits related to collateralized mortgage
obligations ("CMOs") held in the trading account and trading profits of $0.1
million on non-CMO derivative securities, specifically options, futures, and
interest rate swaps, caps, and floors.
The components of trading account assets at September 30, 1998, and December
31, 1997, are presented in the following table (in thousands):
<TABLE>
<CAPTION>
September 30 December 31
1998 1997
------------ ------------
<S> <C> <C>
U.S. Treasury and Government agency $ 49,139 $ 55,487
State and political subdivisions 9,822 8,135
Mortgage-backed pass through securities 16,327 34,282
Other securities - 281
Derivative securities:
Collateralized mortgage obligations 6,872 13,906
Interest rate caps and floors 712 305
Other 168 64
----------- -----------
$ 83,040 $ 112,460
=========== ===========
Noninterest expense increased $9.1 million, or 9 percent, during the third
quarter of 1998 principally as a result of increases in salaries and benefits,
equipment expense, and other noninterest expense. For the nine months ended
September 30, 1998, noninterest expense increased $24.4 million, or 8 percent,
due to increases in salaries and benefits, equipment expense, professional
services, and other noninterest expense. Salaries increased 5 percent and 6
percent, respectively, for the third quarter and the first nine months of 1998
while employee benefits increased 37 percent and 14 percent. The increase in
salaries over 1997 levels was the result of regular merit increases and
increased incentive expense while the increase in employee benefits was due to
increased pension plan expense and payroll tax expense. Equipment expense
increased during 1998 due to increased computer equipment depreciation and
software maintenance, due in part to the installation of new loan and deposit
systems in 1997 as part of the Company's Year 2000 readiness plan, while
professional services expense increased as a result of increased consulting
expenses primarily associated with internal service quality initiatives. Other
noninterest expense increased $6.1 million, or 8 percent, during the first nine
months of 1998 due in large part to increased advertising associated with the
Company's new branding campaign.
Income Taxes
Income tax expense increased by $3.3 million, or 5 percent, during the first
nine months of 1998 compared to the same period in 1997 while pretax income
increased 10 percent. The effective tax rate for the first nine months of 1998
was 33.5 percent, down significantly from the 35.1 percent effective tax rate
for the same period in 1997. The decrease in the effective tax rate was
primarily attributable to investment in tax-advantaged assets.
Provision and Allowance for Loan Losses
The provision for loan losses for the nine months ended September 30, 1998,
increased $4.0 million, or 23 percent, from the same period in 1997 due to a 27
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 nine
months of 1998 were 0.32 percent, up from 0.27 percent for the first nine
months of 1997. Management considers changes in the size and character of the
loan portfolio, changes in nonperforming and past due loans, historical loan
loss experience, the existing risk of individual loans, concentrations of loans
to specific borrowers or industries and existing and prospective economic
conditions when determining the adequacy of the loan loss allowance. The
allowance for loan losses at September 30, 1998, was $124 million, down from
$128 million at December 31, 1997. The ratio of the allowance for loan losses
to loans outstanding was 1.39 percent at September 30, 1998, down from 1.42
percent at December 31, 1997.
Nonperforming Assets and Past Due Loans
Nonperforming assets, comprised of nonaccrual loans, renegotiated loans and
other real estate owned, totaled $57.7 million at September 30, 1998,
increasing $20.4 million from December 31, 1997, as nonaccrual loans increased
$20.0 million. This increase was solely due to the placement of one large
energy loan on nonaccrual status during the third quarter of the year. Because
management believes that this loan is well collateralized and that the
allocated allowance is adequate to cover any potential losses, no additional
provision was deemed necessary. At September 30, 1998, the allowance for loan
losses as a percentage of nonperforming loans was 246 percent as compared to
415 percent at December 31, 1997. The allowance for loan losses as a percentage
of nonperforming loans and accruing loans ninety days or more past due
decreased from 286 percent at December 31, 1997, to 214 percent at September
30, 1998.
Nonperforming assets as a percentage of total loans and other real estate
owned increased to 0.64 percent at September 30, 1998, from 0.41 percent at
December 31, 1997. The amount recorded in other repossessed assets at September
30, 1998, was $465,000, relatively unchanged from December 31, 1997. Loans past
due ninety days or more but still accruing interest decreased 46 percent from
$13.9 million at December 31, 1997, to $7.5 million at September 30, 1998,
representing 0.08 percent of total loans.
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.
Year 2000 Issues
The Company initiated a program in 1997 to review all of the computer
systems of the Company's subsidiary banks ("Subsidiary Banks") in order to
determine whether the systems were Year 2000 compliant. This study not only
involved identifying any required modifications or replacements of certain
hardware and software maintained by the Company, but also receiving assurance
from vendors that the appropriate actions have been taken or are being taken by
them to remedy their Year 2000 issues for computer systems that the vendors are
responsible for maintaining and that are relied upon by the Company.
As a financial institution, the Company's compliance has been closely
monitored by federal regulatory agencies which have completed two examinations
of the Company and its Year 2000 readiness in the past twelve months. The
Company is not aware of any existing regulatory restrictions imposed on it by
the federal regulatory authorities as a result of the Company's current plan
and implementation.
As of September 30, 1998, the Company has identified its information
technology ("IT") and non-IT systems and has completed the assessment phase of
each system's Year 2000 readiness. IT systems within the Subsidiary Banks
include mainframe computer applications, including loan and deposit systems,
while non-IT systems typically include embedded technology, for example,
microcontrollers in elevators. In connection with the identification process,
each system was classified as to its importance within the Company with systems
categorized in one of four categories: mission critical, medium priority, low
priority or immaterial. Mission critical systems are those identified as vital
to a core business activity of the Company.
For each IT and non-IT system that was assessed as Year 2000 compliant,
testing was performed to confirm compliance while for each system that was
found to be not Year 2000 compliant, a three-step plan involving renovation,
validation and implementation was developed to bring the system into
compliance. Renovation is comprised of modifying or replacing hardware and
software in order to make the system compliant (the "Renovation Phase").
Validation involves testing the system to determine compliance after
modification (the "Validation Phase"). Implementation entails bringing the
compliant system into production (the "Implementation Phase"). As of September
30, 1998, 11 percent of the Company's mission critical systems were in the
Renovation Phase, 36 percent were in the Validation Phase, and 53 percent were
in the Implementation Phase. With regard to all mission critical systems, the
Company's plan calls for the substantial completion of the Renovation Phase for
all systems and the Validation Phase for in-house systems by December 31, 1998,
the substantial completion of the Validation Phase for vendor supported systems
by March 31, 1999, and the substantial completion of the Implementation Phase
by June 30, 1999.
In addition, the Subsidiary Banks are also taking appropriate actions to
receive assurance that their customers, principally commercial lending
customers, are taking necessary steps to address their Year 2000 issues due to
the fact that noncompliance could adversely effect their ability to repay
borrowings to the Company. As of September 30, 1998, the Subsidiary Banks have
evaluated the readiness of a majority of their commercial lending customers as
well as a substantial majority of their financial instrument issuers,
broker/dealer counterparties, and federal funds counterparties. Based on these
assessments, management currently believes that there is a low risk of a
material detrimental impact on the Company's results of operations and
financial position because of third party business disruptions or failures
related to Year 2000 events. The Company's assessment of these parties will be
ongoing throughout 1998 and 1999 in order to identify any changes in third
party readiness that could negatively impact the Company.
During 1997 and the first nine months of 1998, the Company has paid $14.7
million related to Year 2000 compliance and anticipates additional payments of
approximately $9.9 million. A substantial portion of these costs have been or
will be capitalized in the installation of software and hardware and will be
amortized over the life of the related assets. There has been no material
increase in IT salaries expense due to Year 2000 compliance activities as many
of the system renovations have coincided with previously planned system
replacements or enhancements, the costs of which have been included in the
costs disclosed above. The deferral of certain other IT projects in order to
assure Year 2000 readiness has not had, and is not expected to have, a material
impact on the Company's financial condition and results of operations.
While a failure to achieve Year 2000 compliance with regard to the
Subsidiary Banks' IT and non-IT systems could have an adverse impact on the
Company's results of operations and financial condition due to inability to
perform normal lending, investing and deposit gathering functions, the Company
believes that its Year 2000 readiness will be essentially completed by the
target date of June 30, 1999, and that any impact of failure to achieve Year
2000 compliance with any of the Company's systems will be immaterial.
The Company's contingency plans have concentrated on potential funding needs
that may arise if there are disruptions in the Company's normal sources of
funds as a result of Year 2000 events, including increased withdrawals by
depositors and the inability of corporate customers to maintain their usual
levels of deposits because of disruptions in their business caused by Year 2000-
related computer problems. The plan also addresses the possibility that some of
the Subsidiary Banks' federal funds counterparties may be unable to sell
federal funds to the Subsidiary Banks and that some of the Subsidiary Banks'
downstream federal funds counterparties may increase borrowing over normal
levels. However, the Company's plan does not address funding requirements
arising from the systemic failure of the financial system in the United States
or globally. The Company's plan also addresses other potential failures by
third parties to fully remedy their systems. This plan will be continually
updated as more information becomes available on the Year 2000 status of the
Company's funds providers and as funding sources are evaluated and procedures
to access those sources are put in place.
Merger and Integration Charges
In connection with the completion of the acquisition of Arizona Bank in the
fourth quarter of 1998 and the purchase of 15 branches from Norwest Bank and
Wells Fargo Bank in the second quarter of 1999, the Company anticipates that on
a consolidated basis it will incur merger- and integration-related expenses of
approximately $17 million, of which a substantial amount will be recorded in
the fourth quarter of 1998. These expenses consist of employment-related
contractual obligations, transaction-related fees, and other expenses.
Financial Condition
Overview
Total assets at September 30, 1998, were $15.2 billion, up 7 percent from
December 31, 1997, 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 September 30, 1998, earning assets totaled $14.0 billion, up from $12.8
billion at December 31, 1997, an increase of 9 percent. The mix of earning
assets shifted significantly toward investment securities in the first nine
months of 1998 with total investment securities comprising 35 percent of total
earning assets at September 30, 1998, up from 28 percent at December 31, 1997,
while the percentage of earning assets represented by loans decreased to 64
percent from 70 percent. This shift was due in large part to the securitization
and sale of approximately $400 million in indirect auto loans in June, 1998,
and the securitization of approximately $500 million in residential mortgages
that were transferred to the Company's investment securities portfolio in
September, 1998.
The growth in assets during the first nine months of 1998 was funded by a
$366 million increase in total deposits and a $324 million increase in federal
funds purchased and securities sold under agreements to repurchase. At
September 30, 1998, deposits accounted for 70 percent of the Company's funding,
down from 72 percent at year end with a loan-to-deposit ratio of 84.14 percent,
down from 87.68 percent at December 31, 1997.
Liquidity and Capital Resources
Net cash provided by operating activities totaled $256 million for the nine
months ended September 30, 1998, represented primarily by net income and the
increase in other payables related to the purchase of investment securities
with trade dates prior to September 30, 1998. Net cash used by investing
activities of $1.2 billion consisted of $2.6 billion in purchases of investment
securities available for sale and investment securities along with a $817
million increase in loans outstanding. Cash inflows consisted of $360 million
received in the securitization and sale of indirect auto loans, proceeds from
maturities/calls of investment securities and securities available for sale of
$1.1 billion and proceeds from sales of securities available for sale of $656
million. Net cash provided by financing activities of $738 million consisted of
a $366 million increase in deposits, an increase in federal funds purchased of
$254 million, an increase in securities sold under agreements to repurchase of
$70 million, and a net increase in long-term borrowings of $88 million, reduced
by the payment of $55 million in common stock dividends.
Total shareholders' equity at September 30, 1998, was 7.41 percent of total
assets compared to 7.16 percent at December 31, 1997. The leverage ratio,
defined as period-end common equity and the Capital Securities adjusted for
goodwill divided by average quarterly assets adjusted for goodwill, was 7.53
percent at September 30, 1998 and 7.40 percent at December 31, 1997. Similarly,
the Company's tangible leverage ratio, defined as period-end common equity and
the Capital Securities adjusted for all intangibles divided by average
quarterly assets adjusted for all intangibles, increased from 7.29 percent at
December 31, 1997 to 7.42 percent at September 30, 1998.
Tier I capital and total qualifying capital (Tier I capital plus Tier II
capital), as defined by regulatory agencies, as of September 30, 1998, exceeded
the target ratios of 6.00 percent and 10.00 percent, respectively, under
current regulations. The Tier I and total qualifying capital ratios at
September 30, 1998, were 9.44 percent and 11.44 percent, respectively, compared
to 9.91 percent and 12.39 percent at December 31, 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>
<TABLE>
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
Allowance for Loan Losses/Nonperforming Assets
(In Thousands)
(Unaudited)
<CAPTION>
Nine Months Ended
September 30
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
ALLOWANCE FOR LOAN LOSSES
Balance at beginning of period $ 127,510 $ 124,935
Add: Provision charged to earnings 21,660 17,677
Deduct: Allowance sold in loan securitization 3,212 -
Loans charged off 26,843 21,860
Loan recoveries (5,151) (4,778)
----------- -----------
Net charge-offs 21,692 17,082
----------- -----------
Balance at end of period $ 124,266 $ 125,530
=========== ===========
Net charge-offs as a percentage of
average loans (annualized) 0.32% 0.27%
Recoveries as a percentage of charge-offs 19.19% 21.86%
</TABLE>
<TABLE>
<CAPTION>
September 30 December 31
1998 1997
------------ -----------
<S> <C> <C>
NONPERFORMING ASSETS
Nonaccrual loans $ 48,322 $ 28,369
Renegotiated loans 2,145 2,334
----------- -----------
Total nonperforming loans 50,467 30,703
Other real estate 7,192 6,581
----------- -----------
Total nonperforming assets $ 57,659 $ 37,284
=========== ===========
Accruing loans ninety days past due $ 7,497 $ 13,887
Other repossessed assets 465 472
Allowance for loan losses 124,266 127,510
Allowance as a percentage of loans 1.39% 1.42%
Total nonperforming loans as a percentage
of loans 0.56% 0.34%
Total nonperforming assets as a percentage
of loans and ORE 0.64% 0.41%
Accruing loans ninety days past due as a
percentage of loans 0.08% 0.15%
Allowance for loan losses as a percentage of
nonperforming loans 246.23% 415.30%
Allowance for loan losses as a percentage of
nonperforming assets 215.52% 342.00%
</TABLE>
<PAGE>
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
Quantitative and Qualitative Disclosures About Market Risk
(In thousands)
(Unaudited)
The Company's interest rate risk management policies and practices, along
with the assumptions used in the net interest income sensitivity analysis, are
described on page 20 of its December 31, 1997 Form 10-K. Net interest income
sensitivities over a one-year time horizon as of September 30, 1998 and
December 31, 1997 are shown below.
<TABLE>
<CAPTION>
Percentage
Increase/(Decrease)
in Interest Income/
Expense Given
Immediate and
Principal/Notional Sustained Parallel
Amount of Earning Interest Rate Shifts
Assets, Interest --------------------------
Bearing Liabilities Down 100 Up 100
and Swaps Basis Points Basis Points
------------------- ------------ ------------
<S> <C> <C> <C>
December 31, 1997:
Assets which reprice in:
One year or less $ 5,176,777 (9.02)% 10.20%
Over one year 7,630,688 (3.20) 2.36
--------------
$ 12,807,465 (5.67) 5.69
==============
Liabilities which
reprice in:
One year or less $ 8,089,099 (12.63) 16.86
Over one year 2,730,991 (4.58) 3.45
--------------
$ 10,820,090 (10.06) 12.58
==============
Non-trading swaps $ 1,561,303 (27.72) (75.80)
==============
Total net interest income
sensitivity (1.60) (2.60)
September 30, 1998:
Assets which reprice in:
One year or less $ 5,236,931 (11.03)% 11.06%
Over one year 8,765,761 (5.03) 2.85
--------------
$ 14,002,692 (7.33) 5.99
==============
Liabilities which
reprice in:
One year or less $ 8,452,696 (15.58) 16.62
Over one year 3,155,024 (4.15) 7.75
--------------
$ 11,607,720 (11.86) 13.73
==============
Non-trading swaps $ 2,060,716 24.30 (49.78)
==============
Total net interest income
sensitivity (2.38) (2.50)
</TABLE>
As shown in the table above, net interest income sensitivity varies slightly
from December 31, 1997 to September 30, 1998. In the down-rate scenario, the
increased sensitivity is due largely to an increase in estimated prepayment
speeds for mortgage loans and mortgage-backed securities, including CMOs.
Increased prepayments in a down-rate environment would result in reinvestment
of cash flows at lower rates, thus increasing net interest income sensitivity.
For the up-rate scenario, the slight decrease in sensitivity is due primarily
to callable receive-fixed swaps where a lower rate environment causes such
swaps to be outstanding for a shorter period of time. The Company will continue
to closely monitor interest rate risk relative to its established policy
limits.
<PAGE>
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION Page
- ------------------------------------------------------------------------- ----
Item 1 Legal Proceedings
- ------ -----------------
During the ordinary course of business, the Company is subject to legal
proceedings which involve claims for substantial monetary relief.
However, based upon the advice of legal counsel, management is of the
opinion that any legal proceedings, individually or in the aggregate,
will not have a material adverse effect on the Company's financial
condition or results of operations.
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)
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION Page
- ------------------------------------------------------------------------- ----
Item 6 Exhibits and Reports on Form 8-K (continued)
- ------ --------------------------------------------
(10)(g) Employment Agreement, dated December 14, 1994, between
Compass Bancshares, Inc. and Charles E. McMahen
(incorporated by reference to Exhibit 10(h) to the
Company's Form 10-K for the year ended December 31,
1994, filed February 27, 1995, with the Securities and
Exchange Commission)
(10)(h) 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)
(10)(i) Compass Bancshares, Inc., Employee Stock Ownership
Benefit Restoration Plan, dated as of May 1, 1997
(incorporated by reference to Exhibit 10(j) to the
December 31, 1997 Form 10-K filed with the Commission)
(10)(j) Compass Bancshares, Inc., Supplemental Retirement Plan,
dated as of May 1, 1997 (incorporated by reference to
Exhibit 10(k) to the December 31, 1997 Form 10-K filed
with the Commission)
(10)(k) Deferred Compensation Plan for Compass Bancshares,
Inc., dated as of February 1, 1996 (incorporated by
reference to Exhibit 10(l) to the December 31, 1997
Form 10-K filed with the Commission)
(12) Ratio of Earnings to Fixed Charges 23
(27) Financial Data Schedule (Filed electronically only)
(b) Reports on Form 8-K
None
<PAGE>
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
November 13, 1998 /s/ GARRETT R. HEGEL
----------------- ---------------------------
Date By Garrett R. Hegel, as its
Chief Financial Officer
<TABLE>
Exhibit (12)
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
Ratio of Earnings to Fixed Charges
(In Thousands)
(Unaudited)
<CAPTION>
Nine Months Ended
September 30
--------------------------
1998 1997
---------- ----------
<S> <C> <C>
Pretax income $ 205,194 $ 186,475
Add fixed charges:
Interest on deposits 281,497 274,712
Interest on borrowings 109,273 88,621
Portion of rental expense
representing interest expense 4,198 3,787
---------- ----------
Total fixed charges 394,968 367,120
---------- ----------
Income before fixed charges $ 600,162 $ 553,595
========== ==========
Pretax income $ 205,194 $ 186,475
Add fixed charges (excluding
interest on deposits):
Interest on borrowings 109,273 88,621
Portion of rental expense
representing interest expense 4,198 3,787
---------- ----------
Total fixed charges 113,471 92,408
---------- ----------
Income before fixed charges
(excluding interest on deposits) $ 318,665 $ 278,883
========== ==========
RATIO OF EARNINGS TO FIXED CHARGES:
Including interest on deposits 1.52x 1.51x
Excluding interest on deposits 2.81x 3.02x
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF INCOME AND RELATED SUPPLEMENTAL
SCHEDULES OF COMPASS BANCSHARES, INC. AS OF AND FOR THE PERIOD ENDED SEPTEMBER
30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS AND RELATED SUPPLEMENTAL SCHEDULES.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 519,046
<INT-BEARING-DEPOSITS> 693
<FED-FUNDS-SOLD> 49,628
<TRADING-ASSETS> 83,040
<INVESTMENTS-HELD-FOR-SALE> 2,860,952
<INVESTMENTS-CARRYING> 2,053,404
<INVESTMENTS-MARKET> 2,090,101
<LOANS> 8,954,974
<ALLOWANCE> 124,266
<TOTAL-ASSETS> 15,165,397
<DEPOSITS> 10,643,338
<SHORT-TERM> 1,688,193
<LIABILITIES-OTHER> 226,446
<LONG-TERM> 1,483,014
0
0
<COMMON> 141,813
<OTHER-SE> 982,593
<TOTAL-LIABILITIES-AND-EQUITY> 15,165,397
<INTEREST-LOAN> 594,986
<INTEREST-INVEST> 187,874
<INTEREST-OTHER> 8,270
<INTEREST-TOTAL> 791,130
<INTEREST-DEPOSIT> 281,497
<INTEREST-EXPENSE> 390,770
<INTEREST-INCOME-NET> 400,360
<LOAN-LOSSES> 21,660
<SECURITIES-GAINS> 3,811
<EXPENSE-OTHER> 335,401
<INCOME-PRETAX> 205,194
<INCOME-PRE-EXTRAORDINARY> 136,406
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 136,406
<EPS-PRIMARY> 1.93
<EPS-DILUTED> 1.91
<YIELD-ACTUAL> 4.12
<LOANS-NON> 48,322
<LOANS-PAST> 7,497
<LOANS-TROUBLED> 2,145
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 127,510
<CHARGE-OFFS> 26,843
<RECOVERIES> 5,151
<ALLOWANCE-CLOSE> 124,266
<ALLOWANCE-DOMESTIC> 124,266
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
