SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Period Ended June 30, 1999 Commission File No. 0-6032
COMPASS BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
Delaware 63-0593897
(State of Incorporation) (I.R.S. Employer Identification No.)
15 South 20th Street
Birmingham, Alabama 35233
(Address of principal executive offices)
(205) 933-3000
(Registrant's telephone number)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $2 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's class of
common stock, as of the latest practicable date.
Class Outstanding at July 31, 1999
-------------------------- ----------------------------
Common Stock, $2 Par Value 113,629,765
The number of pages of this report is 25.
<PAGE>
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION Page
- -------------------------------------------------------------------- ----
Item 1 Financial Statements
Consolidated Balance Sheets as of June 30, 1999 and December 31,
1998 3
Consolidated Statements of Income for the Three and Six Months Ended
June 30, 1999 and 1998 4
Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 1999 and 1998 5
Consolidated Statements of Comprehensive Income for the Three and
Six Months Ended June 30, 1999 and 1998 7
Notes to Consolidated Financial Statements 8
Item 2 Management's Discussion and Analysis of Results of Operations and
Financial Condition 12
Item 3 Quantitative and Qualitative Disclosures About Market Risk 20
PART II. OTHER INFORMATION
- --------------------------------------------------------------------
Item 1 Legal Proceedings 21
Item 4 Submission of Matters to Vote of Security Holders 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>
June 30 December 31
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 648,178 $ 831,614
Investment securities (fair value of
$1,588,780 and $1,923,938 for 1999 and
1998, respectively) 1,619,186 1,896,039
Investment securities available for sale 4,114,922 3,645,761
Trading account securities 76,466 127,671
Federal funds sold and securities purchased
under agreements to resell 45,734 27,786
Loans 10,465,843 10,101,285
Allowance for loan losses (139,728) (136,677)
------------ ------------
Net loans 10,326,115 9,964,608
Premises and equipment, net 376,104 353,009
Other assets 524,623 442,420
------------ ------------
Total assets $17,731,328 $17,288,908
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest bearing $ 2,579,277 $ 2,551,958
Interest bearing 10,031,325 9,461,488
------------ ------------
Total deposits 12,610,602 12,013,446
Federal funds purchased and securities
sold under agreements to repurchase 1,307,919 1,736,066
Other short-term borrowings 216,946 159,404
Accrued expenses and other liabilities 77,877 137,871
FHLB and other borrowings 2,238,890 1,945,980
Guaranteed preferred beneficial interests
in Company's junior subordinated
deferrable interest debentures (Note 3) 100,000 100,000
------------ ------------
Total liabilities 16,552,234 16,092,767
Shareholders' equity:
Preferred stock 11,500 28,750
Common stock of $2 par value:
Authorized--200,000,000 shares;
Issued--113,587,586 shares in 1999 and
75,567,333 shares in 1998 227,175 151,135
Surplus 130,502 126,813
Loans to finance stock purchases (2,836) (2,941)
Unearned restricted stock (3,750) (3,472)
Accumulated other comprehensive income (52,776) 10,555
Retained earnings 869,279 885,301
------------ ------------
Total shareholders' equity 1,179,094 1,196,141
------------ ------------
Total liabilities and shareholders'
equity $17,731,328 $17,288,908
============ ============
</TABLE>
<PAGE>
<TABLE>
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(In Thousands Except Per Share Data)
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
---------------------- ----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $209,526 $215,400 $411,105 $422,837
Interest on investment
securities 28,267 15,740 59,017 33,821
Interest on investment
securities available
for sale 66,741 43,681 130,401 85,160
Interest on trading account
securities 1,314 1,281 2,645 2,887
Interest on federal funds
sold and securities
purchased under agreements
to resell 768 1,794 1,165 3,391
---------- ---------- ---------- ----------
Total interest income 306,616 277,896 604,333 548,096
INTEREST EXPENSE:
Interest on deposits 100,619 101,468 198,766 198,134
Interest on federal funds
purchased and securities
sold under agreements to
repurchase 19,366 11,928 36,340 24,791
Interest on other short
-term borrowings 2,248 2,284 3,928 4,363
Interest on FHLB and other
borrowings 23,360 17,936 48,260 36,426
Interest on guaranteed prefer-
red beneficial interests in
Company's junior subordinated
deferrable interest
debentures 2,057 2,057 4,115 4,115
---------- ---------- ---------- ----------
Total interest expense 147,650 135,673 291,409 267,829
---------- ---------- ---------- ----------
Net interest income 158,966 142,223 312,924 280,267
Provision for loan losses 8,389 8,531 14,824 16,595
---------- ---------- ---------- ----------
Net interest income
after provision for
loan losses 150,577 133,692 298,100 263,672
NONINTEREST INCOME:
Service charges on deposit
accounts 25,372 21,883 47,323 42,082
Asset management fees 4,645 3,714 9,340 8,510
Trading account profits and
commissions 2,287 2,851 5,897 7,160
Retail investment sales 5,818 5,266 11,005 9,463
Investment securities
gains, net 35 222 2,098 2,319
Gain on sale of securitized
loans - 4,264 - 4,264
Other 20,127 18,068 39,901 36,449
---------- ---------- ---------- ----------
Total noninterest income 58,284 56,268 115,564 110,247
NONINTEREST EXPENSE:
Salaries, benefits and
commissions 63,084 61,669 129,825 121,428
Net occupancy expense 9,356 8,726 18,810 17,430
Equipment expense 10,537 9,066 20,560 18,146
Professional services 10,186 9,085 18,314 17,582
Merger and integration 1,548 1,804 2,930 3,753
Other 31,985 27,757 60,216 54,751
---------- ---------- ---------- ----------
Total noninterest expense 126,696 118,107 250,655 233,090
---------- ---------- ---------- ----------
Net income before income
tax expense 82,165 71,853 163,009 140,829
Income tax expense 28,469 24,314 56,314 47,685
---------- ---------- ---------- ----------
NET INCOME $53,696 $47,539 $106,695 $ 93,144
========== ========== ========== ==========
BASIC EARNINGS PER SHARE $0.47 $0.42 $0.93 $0.83
Basic weighted average shares
outstanding 113,309 110,850 113,269 110,704
DILUTED EARNINGS PER SHARE $0.47 $0.42 $0.92 $0.81
Diluted weighted average shares
outstanding 114,583 114,023 114,383 113,865
Dividends per common share $0.20 $0.175 $0.40 $0.35
</TABLE>
<PAGE>
<TABLE>
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
<CAPTION>
Six Months Ended
June 30
-----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Operating Activities:
Net income $ 106,695 $ 93,144
Adjustments to reconcile net income to
cash provided by operations:
Depreciation and amortization 27,655 22,960
Accretion of discount and loan fees (4,547) (6,330)
Provision for loan losses 14,824 16,595
Net change in trading account securities 51,205 29,854
Net change in mortgage loans held
for sale 17,847 (22,492)
Gain on sale of securitized loans - (4,264)
Gain on sale of securities available for sale (2,098) (2,319)
(Gain) loss on sale of premises and equipment (124) 168
Gain on sale of other real estate owned (428) (206)
Provision for losses on other real estate
owned (42) (186)
Increase in interest receivable (11,159) (6,470)
(Increase) decrease in other assets (5,462) 28,135
Decrease in interest payable (11,630) (6,530)
Increase (decrease) in taxes payable (11,359) 7,100
Increase (decrease) in other payables 1,360 (33,650)
------------ ------------
Net cash provided by operating activities 172,737 115,509
Investing Activities:
Proceeds from maturities of investment
securities 277,535 358,423
Purchases of investment securities - (842,920)
Proceeds from sales of securities
available for sale 297,472 455,136
Proceeds from maturities of
securities available for sale 583,376 436,408
Purchases of securities available for sale (930,682) (848,607)
Net increase in federal funds
sold and securities purchased
under agreements to resell (17,948) (40,056)
Net increase in loan portfolio (819,214) (425,238)
Sale of securitized loans - 359,680
Purchase of branches 209,664 -
Purchases of premises and equipment (34,772) (29,193)
Proceeds from sales of other
real estate owned 3,710 3,145
------------ ------------
Net cash used by investing activities (430,859) (573,222)
</TABLE>
<PAGE>
<TABLE>
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
<CAPTION>
Six Months Ended
June 30
-----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Financing Activities:
Net increase in demand deposits,
NOW accounts and savings accounts $ 383,813 $ 434,293
Net increase (decrease) in time deposits (169,311) 62,851
Net decrease in federal funds
purchased and securities sold
under agreements to repurchase (428,147) (201,079)
Net increase in short-term
borrowings 57,542 38,238
Issuance of FHLB advances and
other borrowings 782,992 146,000
Repayment of FHLB advances and
other borrowings (490,131) (107,648)
Common dividends paid (45,420) (36,793)
Preferred stock dividends (997) (1,533)
Retirement of preferred stock (17,768) -
Exercise of stock options of acquired
entities prior to acquisition - 599
Repayment of loans to finance stock
purchases 1,322 4,606
Proceeds from exercise of stock options 791 3,593
------------ ------------
Net cash provided by
financing activities 74,686 343,127
------------ ------------
Net decrease in cash and due from banks (183,436) (114,586)
Cash and due from banks at beginning of period 831,614 793,812
------------ ------------
Cash and due from banks at end of period $ 648,178 $ 679,226
============ ============
Schedule of noncash investing and
financing activities:
Transfers of loans to other real estate owned $ 4,055 $ 4,799
Loans to facilitate the sale of
other real estate owned 994 63
Loans to finance stock purchases 1,217 1,163
Purchases of securities, not yet settled - 204,810
Sales of securities, not yet settled 116 25,386
Tax benefit realized upon exercise
of stock options 351 419
Issuance of restricted stock 2,122 3,014
Assets retained in loan securitization and sale - 36,593
Change in unrealized gain/loss on available-
for-sale securities (101,910) 8,151
Securitization and tranfer of loans to
investment securities 516,997 -
Acquisition of branches:
Liabilities assumed $ 382,769
Assets acquired 173,105
------------
Net liabilities assumed $ 209,664
============
</TABLE>
<PAGE>
<TABLE>
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(In Thousands)
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
-------------------- -------------------
1999 1998 1999 1998
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net income $ 53,696 $ 47,539 $106,695 $ 93,144
Other comprehensive income, before
tax:
Unrealized holding gain (loss) on
securities available for sale, net (85,138) 7,580 (99,714) 10,497
Less reclassification adjustment
for gains (losses) on securities
available for sale 35 222 2,098 2,319
---------- --------- --------- ---------
Total other comprehensive
income, before tax (85,173) 7,358 (101,812) 8,178
Income tax expense (benefit) related
to other comprehensive income:
Unrealized holding gain (loss) on
securities available for sale, net (32,167) 2,652 (37,711) 4,056
Less reclassification adjustment
for gains (losses) on securities
available for sale 15 89 769 859
---------- --------- --------- ---------
Total income tax expense
(benefit) related to other
comprehensive income (32,182) 2,563 (38,480) 3,197
---------- --------- --------- ---------
Total other comprehensive
income (loss), net of tax (52,991) 4,795 (63,332) 4,981
---------- --------- --------- ---------
Total comprehensive income $ 705 $ 52,334 $ 43,363 $ 98,125
========== ========= ========= =========
</TABLE>
<PAGE>
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
NOTE 1 - General
The consolidated financial statements of Compass Bancshares, Inc. (the
"Company") 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, 1998.
NOTE 2 - Business Combinations
On April 19, 1999, the Company completed the purchase of 15 branches in
Arizona from Wells Fargo Bank, N.A. These branches, primarily in the Phoenix
area, added approximately $400 million in deposits. The transaction was
accounted for under the purchase method of accounting.
On June 17, 1999, the Company signed a definitive agreement to acquire
Hartland Bank, N.A. in Austin, Texas, with assets of $294 million and deposits
of $258 million. The Company will acquire all of the outstanding shares of
Hartland Bank in exchange for approximately $85 million in cash. It is
anticipated that the transaction will close during the fourth quarter of 1999
and will be accounted for under the purchase method of accounting.
On July 26, 1999, the Company signed a definitive agreement to merge with
Western Bancshares, Inc. in Albuquerque, New Mexico, with assets of $285
million and equity of $34 million. Based on the Company's closing stock price
on the date prior to the signing of the definitive agreement, the merger is
valued at approximately $88 million. It is anticipated that the transaction
will close during the first quarter of 2000 and will be accounted for under the
pooling-of-interests method of accounting.
NOTE 3 - 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 4 -Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board ("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.
FAS133 will significantly change the accounting treatment of derivative
instruments and, depending upon the underlying risk management strategy, these
accounting changes could affect future earnings, assets, liabilities, and
shareholders' equity. As a result, the Company may reconsider its risk
management strategies since the new standard would not reflect the results of
many of those strategies in the same manner as current accounting practice. The
Company is presently evaluating the impact of FAS133 on its computer systems
and accounting policies and is also closely monitoring the deliberations of the
FASB's derivative implementation task force. With the issuance of Financial
Accounting Statement No. 137, Accounting for Derivative Instruments and Hedging
Activities-Deferral of the Effective Date of FASB Statement No. 133, which
delayed the effective date of FAS133, the Company will be required to adopt
FAS133 on January 1, 2001. Presently, the Company has not yet quantified the
impact that the adoption will have on the consolidated financial statements of
the Company.
<PAGE>
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements - Continued
NOTE 5 - Earnings Per Share
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
------------------- --------------------
1999 1998 1999 1998
--------- -------- --------- ---------
(In Thousands Except Per Share Data)
(Unaudited)
<S> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE:
Net income $ 53,696 $47,539 $106,695 $ 93,144
Less: Dividends on non-convertible
and convertible preferred stock and
redemption premium 339 767 1,552 1,533
--------- -------- --------- ---------
Net income available to
common shareholders $ 53,357 $46,772 $105,143 $ 91,611
========= ======== ========= =========
Weighted average shares outstanding 113,309 110,850 113,269 110,704
========= ======== ========= =========
Basic earnings per share $ 0.47 $ 0.42 $ 0.93 $ 0.83
========= ======== ========= =========
DILUTED EARNINGS PER SHARE:
Net income $ 53,696 $47,539 $106,695 $ 93,144
Less: dividends on non-
convertible preferred stock
and redemption premium 339 695 1,552 1,391
--------- -------- --------- ---------
Net income available to
common shareholders
and assumed conversions $ 53,357 $46,844 $105,143 $ 91,753
========= ======== ========= =========
Weighted average shares outstanding 113,309 110,850 113,269 110,704
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 1,274 1,484 1,114 1,471
Assumed conversion of
preferred stock - 1,689 - 1,690
--------- -------- --------- ---------
Total weighted average shares and
common stock equivalents
outstanding 114,583 114,023 114,383 113,865
========= ======== ========= =========
Diluted earnings per share $ 0.47 $ 0.42 $ 0.92 $ 0.81
========= ======== ========= =========
</TABLE>
<PAGE>
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements - Continued
NOTE 6 - Segment Information
The following tables present the segment information for the Company's
segments as of and for the periods ended June 30, 1999 and 1998. Due to
impracticality, prior period information has not been restated to reflect the
securitization and transfer from other segments, predominantly the Retail
Banking segment, to the Treasury segment for segment reporting purposes of
approximately $1 billion in real estate mortgages. For a discussion of the
Company's segments, refer to Note 16 of the "Notes to the Consolidated
Financial Statements" as presented in the Company's 1998 Form 10-K.
<TABLE>
<CAPTION>
For the Six Months Ended June 30, 1999
(in Thousands)
Corporate Community Retail Asset
Banking Banking Banking Management
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Income Statement
Net interest income $ 92,324 $ 51,252 $ 84,667 $ 13,217
Noninterest income 18,571 20,929 56,602 10,634
Noninterest expense 36,133 29,932 77,461 10,842
---------- ---------- ---------- ---------
Segment net income 74,762 42,249 63,808 13,009
Balance Sheet
Average total assets $4,968,017 $1,423,997 $ 965,854 $361,092
Average total loans 4,802,830 1,332,696 842,209 353,428
Average total deposits 1,878,723 3,272,769 5,888,570 701,670
</TABLE>
<TABLE>
<CAPTION>
Corporate
Support
Treasury and Other Consolidated
---------- ----------- ------------
<S> <C> <C> <C>
Income Statement
Net interest income $ 75,234 $ (3,770) $ 312,924
Noninterest income 6,871 1,957 115,564
Noninterest expense 2,884 93,403 250,655
---------- --------- -----------
Segment net income 79,221 (95,216) 177,833
Provision for loan losses 14,824
-----------
Net income before income
tax expense 163,009
Income tax expense 56,314
-----------
Net income $ 106,695
===========
Balance Sheet
Average total assets $8,807,941 $ 734,894 $17,261,795
Average total loans 1,338,296 1,290,299 9,959,758
Average total deposits 1,138,509 (674,998) 12,205,243
</TABLE>
<TABLE>
<CAPTION>
For the Six Months Ended June 30, 1998
(in Thousands)
Corporate Community Retail Asset
Banking Banking Banking Management
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Income Statement
Net interest income $ 80,351 $ 50,131 $ 72,978 $ 12,354
Noninterest income 18,251 19,467 47,653 9,709
Noninterest expense 33,563 29,366 66,080 10,169
---------- ---------- ---------- ---------
Segment net income 65,039 40,232 54,551 11,894
Balance Sheet
Average total assets $4,365,315 $1,361,160 $1,009,302 $372,879
Average total loans 4,184,960 1,276,655 878,635 362,514
Average total deposits 1,582,167 2,974,275 5,002,727 541,924
</TABLE>
<TABLE>
<CAPTION>
Corporate
Support
Treasury and Other Consolidated
---------- ----------- ------------
<S> <C> <C> <C>
Income Statement
Net interest income $ 43,395 $ 21,058 $ 280,267
Noninterest income 8,020 7,147 110,247
Noninterest expense 2,432 91,480 233,090
---------- --------- -----------
Segment net income 48,983 (63,276) 157,424
Provision for loan losses 16,595
-----------
Net income before income
tax expense 140,829
Income tax expense 47,685
-----------
Net income $ 93,144
===========
Balance Sheet
Average total assets $6,043,170 $1,658,568 $14,810,394
Average total loans 1,170,490 1,784,892 9,658,146
Average total deposits 638,036 351,560 11,090,689
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
Forward-Looking Information
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 reasons 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.
Overview
Net income for the quarter ended June 30, 1999, increased 13 percent to
$53.7 million while diluted earnings per share increased 12 percent to $0.47
per share. Net interest income increased 12 percent to $159.0 million from the
second quarter of 1998. Noninterest income increased 4 percent to $58.3 million
while noninterest expense increased 7 percent to $126.7 million.
For the first six months of 1999, net income increased 15 percent to $106.7
million and diluted earnings per share increased 14 percent to $0.92 per share.
Net interest income for the six months grew to $312.9 million, an increase of
12 percent, while noninterest income and noninterest expense increased 5
percent and 8 percent, respectively.
Net Interest Income
Net interest income for the quarter ended June 30, 1999, increased $16.7
million over the second quarter of 1998 to $159.0 million with interest income
and interest expense increasing $28.7 million and $12.0 million, respectively.
The increase in interest income was primarily due to an increase in average
earning assets of $2.5 billion, or 18 percent, partially offset by a 55 basis
point decrease in the average yield on earning assets from 8.18 percent to 7.63
percent. The largest portion of the increase in average earning assets from the
second quarter of 1998 occurred in the average balance of investment securities
available for sale, which increased 52 percent, or $1.4 billion, due
principally to the securitization of approximately $1 billion in real estate
mortgages and their transfer to investment securities available for sale ($500
million each in September 1998 and February 1999). Average loans, including the
impact of loans securitized and transferred, increased four percent from the
second quarter of 1998. Excluding the impact of the securitizations discussed
above, the securitization and sale of approximately $400 million in indirect
auto loans in June 1998, and the April 1999 acquisition of branches from Wells
Fargo Bank, N.A., average loans grew 18 percent from the second quarter of
1998. The 9 percent increase in interest expense during the quarter was a
result of a $2.2 billion increase in average interest bearing liabilities,
primarily savings accounts and federal funds purchased and securities sold
under agreements to repurchase, offset by a 40 basis point decrease in the rate
paid on interest bearing liabilities.
For the first six months of 1999, net interest income increased 12 percent,
or $32.7 million, to $312.9 million consisting of a $56.2 million increase in
interest income and a $23.6 million increase in interest expense. The increase
in interest income was due to an 18 percent increase in average earning assets
partially offset by a decline in the yield on earning assets of 52 basis
points, to 7.68 percent from 8.20 percent. The average balance of investment
securities available for sale for the first six months of 1999 increased $1.4
billion over the comparable 1998 period due to the factors discussed
previously. A $2.1 billion increase in average interest bearing liabilities
combined with a 38 basis point decline in the rate paid on interest bearing
liabilities resulted in a 9 percent increase in interest expense.
Net Interest Margin
Net interest margin, stated as a percentage, is the yield on average earning
assets obtained by dividing the difference between the overall interest income
on earning assets and the interest expense paid on all funding sources by
average earning assets. For the second quarter of 1999, the net interest
margin, on a tax-equivalent basis, was 3.97 percent compared to 4.20 percent
for the same period in 1998. For the six months ended June 30, 1999, net
interest margin decreased 22 basis points from 4.21 percent in the prior year
to 3.99 percent. These decreases 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 second quarter decreased 55 basis
points, including a 54 basis point decrease in the yield on loans, while the
cost on interest bearing liabilities decreased 40 basis points. Similarly, a 51
basis point decrease in the yield on loans contributed to a 52 basis point
decline in the yield on interest earning assets for the first six months of
1999 while the cost of interest bearing liabilities decreased 38 basis points.
During the second quarter of 1999, 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 9
basis point impact for the same period in 1998. For the six months ended June
30, 1999, the Company's use of interest rate contracts increased the Company's
net interest margin by 9 basis points, up from 8 basis points during the first
six months of 1998.
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 six month and three month periods
ended June 30, 1999, as compared to the comparable periods of 1998 (in
thousands):
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1999
---------------------------------------------
Change
1998 Attributed to
to --------------------------------
1999 Volume Rate Mix
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Interest income:
Loans $(11,771) $13,290 $(24,297) $ (764)
Investment securities 24,947 28,591 (2,012) (1,632)
Investment securities available
for sale 45,761 44,796 633 332
Trading account securities (256) (86) (175) 5
Fed funds and resale agreements (2,227) (2,066) (411) 250
--------- --------- --------- --------
Increase in interest income $ 56,454 $ 84,525 $(26,262) $(1,809)
========= ========= ========= ========
Interest expense:
Deposits $ 632 $ 19,887 $(18,870) $ (385)
Fed funds purchased and repos 11,549 17,030 (3,249) (2,232)
Other short-term borrowings (435) 50 (480) (5)
FHLB and other borrowings* 11,834 16,257 (3,157) (1,266)
--------- --------- --------- --------
Increase in interest expense $ 23,580 $ 53,224 $(25,756) $(3,888)
========= ========= ========= ========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
June 30, 1999
---------------------------------------------
Change
1998 Attributed to
to --------------------------------
1999 Volume Rate Mix
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Interest income:
Loans $ (5,902) $ 7,846 $(13,266) $ (482)
Investment securities 12,431 14,249 (973) (845)
Investment securities available
for sale 23,403 22,926 313 164
Trading account securities 28 114 (78) (8)
Fed funds and resale agreements (1,024) (931) (194) 101
--------- -------- --------- --------
Increase in interest income $ 28,936 $44,204 $(14,198) $(1,070)
========= ======== ========= ========
Interest expense:
Deposits $ (849) $ 9,149 $ (9,754) $ (244)
Fed funds purchased and repos 7,438 10,258 (1,516) (1,304)
Other short-term borrowings (36) 165 (187) (14)
FHLB and other borrowings* 5,424 7,395 (1,439) (532)
--------- -------- --------- --------
Increase in interest expense $ 11,977 $26,967 $(12,896) $(2,094)
========= ======== ========= ========
</TABLE>
* Includes Capital Securities.
Noninterest Income and Noninterest Expense
During the second quarter of 1999, noninterest income increased $2.0
million, or 4 percent, to $58.3 million, due primarily to a $3.5 million
increase in service charges on deposit accounts and a $2.1 million increase in
other noninterest income offset by a $4.3 million gain that was realized in the
second quarter of 1998 with the securitization and sale of automobile loans.
Noninterest income for the first six months of 1999 increased $5.3 million, or
5 percent, to $115.6 million as a result of a 12 percent increase in service
charges on deposit accounts, a 16 percent increase in retail investment sales
income, and a 9 percent increase in other noninterest income. The increase in
service charges on deposit accounts was due to the increase in deposits while
the increase in other noninterest income was due to increased credit card fees
and servicing income related to the Company's June 1998 automobile loan
securitization.
Noninterest expense increased $8.6 million, or 7 percent, during the second
quarter and $17.6 million, or 8 percent, during the first six months of 1999,
primarily due to increased equipment expense and other noninterest expense.
Equipment expense increased during the second quarter and first six months of
the year by 16 percent and 13 percent, respectively, due to increased computer
equipment depreciation and software amortization. Other noninterest expense
increased 15 percent during the second quarter of 1999 and 10 percent during
the first six months of the year due in part to additional amortization of
intangibles associated with the Company's branch acquisition in April 1999.
Income Taxes
Income tax expense increased by $8.6 million, or 18 percent, during the
first six months of 1999 compared to the same period in 1998 as pretax income
increased 16 percent. The effective tax rate for the first six months of 1999
was 34.5 percent, up from the 33.9 percent effective tax rate for the same
period in 1998.
Provision and Allowance for Loan Losses
The provision for loan losses for the six months ended June 30, 1999,
decreased $1.8 million from the same period in 1998. Net loan charge-offs
expressed as an annualized percentage of average loans for the first six months
of 1999 were 0.26 percent, down from 0.34 percent for the first six months of
1998. Management considers changes in the size and character of the loan
portfolio, changes in nonperforming and past due loans, historical loan loss
experience, the existing risk of individual loans, concentrations of loans to
specific borrowers or industries and existing and prospective economic
conditions when determining the adequacy of the loan loss allowance. The
allowance for loan losses at June 30, 1999, was $140 million. The ratio of the
allowance for loan losses to loans outstanding was 1.34 percent at June 30,
1999, down slightly from 1.35 percent at December 31, 1998.
Nonperforming Assets and Past Due Loans
Nonperforming assets, comprised of nonaccrual loans, renegotiated loans and
other real estate owned, totaled $62.3 million at June 30, 1999, increasing 12
percent from December 31, 1998, as nonaccrual loans increased $7.1 million, or
15 percent, primarily due to two nonaccrual loans to energy-related companies.
At June 30, 1999, the allowance for loan losses as a percentage of
nonperforming loans was 250 percent as compared to 279 percent at December 31,
1998. The allowance for loan losses as a percentage of nonperforming loans and
accruing loans ninety days or more past due decreased from 237 percent at
December 31, 1998, to 210 percent at June 30, 1999.
Nonperforming assets as a percentage of total loans and other real estate
owned increased slightly to 0.60 percent at June 30, 1999, from 0.55 percent at
December 31, 1998. The amount recorded in other repossessed assets at June 30,
1999, was $1.2 million, down 30 percent from $1.8 million at December 31, 1998.
Loans past due ninety days or more but still accruing interest increased 22
percent from $8.7 million at December 31, 1998, to $10.6 million at June 30,
1999.
As discussed in the Company's 1998 Form 10-K, three percent of the Company's
loan portfolio is represented by loans to energy-related companies that are
dependent on oil and natural gas production as a source of repayment. The low
level of energy prices during the latter half of 1998 adversely impacted this
segment of the Company's portfolio. While energy prices have rebounded during
the first half of 1999, this segment of the portfolio continues to experience
considerable stress as a result of an extended period of depressed oil prices.
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 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.
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 Company 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 June 30,
1999, none of the Company's mission critical systems were in the Renovation
Phase, less than 1 percent were in the Validation Phase, and more than 99
percent were in the Implementation Phase.
In addition, the Company is also taking appropriate actions to receive
assurance that its 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. The Company has evaluated the readiness of a majority of its
commercial lending customers as well as a substantial majority of its 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 1999 in order to identify any
changes in third party readiness that could negatively impact the Company.
The Company expects to pay less than $25 million related to Year 2000
compliance and anticipates remaining additional payments of approximately $1.0
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 Company's
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 has essentially
completed its Year 2000 readiness at June 30, 1999, and believes 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 Company's federal funds counterparties may be unable to sell federal funds
to the Company and that some of the Company's 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 additional, more diversified funding sources are secured.
Financial Condition
Overview
Total assets at June 30, 1999, were $17.7 billion, up from $17.3 billion at
December 31, 1998, due primarily to the acquisition of branches from Wells
Fargo Bank, N.A. which was accounted for under the purchase method of
accounting. The Company redeemed its outstanding Series F preferred stock of
$17.25 million during the first quarter of 1999.
Assets and Funding
At June 30, 1999, earning assets totaled $16.3 billion, up from $15.8
billion at December 31, 1998. The mix of earning assets remained unchanged with
total investment securities and loans comprising 35 percent and 64 percent,
respectively, of total earning assets at June 30, 1999. Increases in interest
bearing deposits resulting from the branch acquisition discussed previously and
FHLB and other borrowings during the first six months of 1999 offset a decrease
in federal funds purchased and securities sold under agreements to repurchase.
At June 30, 1999, deposits accounted for 71 percent of the Company's funding,
up slightly from year end.
Liquidity and Capital Resources
Net cash provided by operating activities totaled $173 million for the six
months ended June 30, 1999. Net cash used by investing activities of $431
million consisted of $931 million in purchases of investment securities
available for sale and a $819 million increase in loans outstanding offset by
proceeds from maturities of investment securities of $278 million, proceeds
from maturities of securities available for sale of $583 million, proceeds from
sales of securities available for sale of $297 million, and $210 million
received in connection with the purchase of branches from Wells Fargo Bank,
N.A. Net cash used by financing activities of $75 million consisted of a $215
million increase in deposits and a $293 million net increase in FHLB and other
borrowings reduced by a decrease in federal funds purchased and securities sold
under agreements to repurchase of $428 million, the retirement of preferred
stock of $18 million, and the payment of $46 million in common stock and
preferred stock dividends.
Total shareholders' equity at June 30, 1999, was 6.65 percent of total
assets compared to 6.92 percent at December 31, 1998 due to a $63 million
decrease in accumulated other comprehensive income. 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 6.71 percent at
June 30, 1999 and 7.26 percent at December 31, 1998. 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, was 6.64 percent at June 30, 1999 compared to
7.16 percent at December 31, 1998.
Tier I capital and total qualifying capital (Tier I capital plus Tier II
capital), as defined by regulatory agencies, as of June 30, 1999, exceeded the
target ratios for well capitalized of 6.00 percent and 10.00 percent,
respectively, under current regulations. The Tier I and total qualifying
capital ratios at June 30, 1999, were 8.15 percent and 10.48 percent,
respectively, compared to 8.81 percent and 10.71 percent at December 31, 1998.
Tier II capital includes supplemental capital components such as qualifying
allowances for loan losses, certain qualifying classes of preferred stock and
qualifying subordinated debt. Increased regulatory activity in the financial
industry as a whole will continue to impact the industry; however, management
does not anticipate any negative impact on the capital resources or operations
of the Company.
<PAGE>
<TABLE>
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
Allowance for Loan Losses/Nonperforming Assets
(In Thousands)
(Unaudited)
<CAPTION>
Six Months Ended
June 30
--------------------------
1999 1998
---------- ----------
<S> <C> <C>
ALLOWANCE FOR LOAN LOSSES
Balance at beginning of period $ 136,677 $ 135,225
Add: Provision charged to earnings 14,824 16,595
Allowance on acquisitions (loan
dispositions) 1,296 (3,212)
Deduct: Loans charged off 18,145 21,015
Loan recoveries (5,076) (4,488)
---------- ----------
Net charge-offs 13,069 16,527
---------- ----------
Balance at end of period $ 139,728 $ 132,081
========== ==========
Net charge-offs as a percentage of
average loans (annualized) 0.26% 0.34%
Recoveries as a percentage of charge-offs 27.97% 21.36%
</TABLE>
<TABLE>
<CAPTION>
June 30 December 31
1999 1998
---------- -----------
<S> <C> <C>
NONPERFORMING ASSETS
Nonaccrual loans $ 55,371 $ 48,250
Renegotiated loans 518 665
---------- ----------
Total nonperforming loans 55,889 48,915
Other real estate 6,454 6,657
---------- ----------
Total nonperforming assets $ 62,343 $ 55,572
========== ==========
Accruing loans ninety days or more
past due $ 10,634 $ 8,699
Other repossessed assets 1,242 1,779
Allowance for loan losses 139,728 136,677
Allowance as a percentage of loans 1.34% 1.35%
Total nonperforming loans as a percentage
of loans 0.53% 0.48%
Total nonperforming assets as a percentage
of loans and ORE 0.60% 0.55%
Accruing loans ninety days or more past due
as a percentage of loans 0.10% 0.09%
Allowance for loan losses as a percentage of
nonperforming loans 250.01% 279.42%
Allowance for loan losses as a percentage of
nonperforming assets 224.13% 245.95%
</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, 1998 Form 10-K. Net interest income
sensitivities over a one-year time horizon as of June 30, 1999 and December 31,
1998 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, 1998:
Assets which reprice in:
One year or less $ 5,670,836 (10.75)% 10.49%
Over one year 10,127,706 (5.88) 2.87
--------------
$ 15,798,542 (7.66) 5.65
==============
Liabilities which
reprice in:
One year or less $ 9,967,789 (14.28) 17.68
Over one year 3,435,149 (4.84) 9.23
--------------
$ 13,402,938 (11.20) 14.92
==============
Total net interest income
sensitivity (4.34) (3.03)
June 30, 1999:
Assets which reprice in:
One year or less $ 5,903,652 (9.61)% 7.84%
Over one year 10,418,499 (2.53) 1.77
--------------
$ 16,322,151 (5.20) 4.06
==============
Liabilities which
reprice in:
One year or less $ 10,508,318 (13.01) 16.82
Over one year 3,386,762 (4.72) 6.12
--------------
$ 13,895,080 (10.36) 13.40
==============
Total net interest income
sensitivity (0.30) (4.80)
</TABLE>
As shown in the table above, from December 31, 1998 to June 30, 1999 the net
interest income sensitivity decreased in the down-rate scenario and increased
in the up-rate scenario. Both of these movements are due in large part to the
increase in the general level of interest rates during the second quarter of
1999. This increase in interest rates caused estimated prepayments on mortgage
loans and mortgage-backed securities, including CMOs, to slow. Slower
prepayments resulted in a smaller amount of cash flows requiring reinvestment
at lower rates in a down-rate scenario, thereby, decreasing sensitivity to
lower rates. However, slower prepayments also resulted in smaller cash flows
available to reinvest at higher rates in the up-rate scenario, hence,
increasing sensitivity to higher rates. Addition of receive fixed structured
swaps in the second quarter also contributed to the changes in sensitivity.
<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 4 Submission of Matters to Vote of Security Holders
- ------ -------------------------------------------------
The election of two directors and the approval of the Company's
1999 Omnibus Incentive Compensation Plan were submitted to the
shareholders at the Company's Annual Meeting held April 26, 1999.
Tranum Fitzpatrick and John S. Stein were elected upon receipt of
the following votes for/withheld, respectively,
84,931,319/1,138,701 and 84,823,887/1,246,133. Charles W. Daniel,
D. Paul Jones, Jr., Carl J. Gessler, Jr., M.D., William Eugene
Davenport, Marshall Durbin, Jr., and Robert J. Wright were not
subject to reelection and their terms continued after the meeting.
In addition, the Company's 1999 Omnibus Incentive Compensation Plan
was approved by a vote of for/against/abstain of
76,684,464/8,584,109/801,448.
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)
<PAGE>
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 Securities
and Exchange 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 Securities and Exchange 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 Securities and Exchange
Commission)
(12)(a) Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends 24
(12)(b) Ratio of Earnings to Fixed Charges 25
(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.
August 10, 1999 /s/ GARRETT R. HEGEL
- --------------- ---------------------------
Date By Garrett R. Hegel, as its
Chief Financial Officer
<TABLE>
Exhibit (12)(a)
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends
(In Thousands)
(Unaudited)
<CAPTION>
Six Months Ended
June 30
-----------------------
1999 1998
----------- ----------
<S> <C> <C>
Pretax income $163,009 $140,829
Add fixed charges:
Interest on deposits 198,766 198,134
Interest on borrowings 92,643 69,695
Portion of rental expense
representing interest expense 3,198 2,878
---------- ----------
Total fixed charges 294,607 270,707
---------- ----------
Income before fixed charges $457,616 $411,536
========== ==========
Total fixed charges $294,607 $270,707
Preferred stock dividends and
redemption premium 1,552 1,533
Tax effect of preferred stock dividends 819 785
---------- ----------
Combined fixed charges and preferred
stock dividends $296,978 $273,025
========== ==========
Pretax income $163,009 $140,829
Add fixed charges (excluding
interest on deposits):
Interest on borrowings 92,643 69,695
Portion of rental expense
representing interest expense 3,198 2,878
---------- ----------
Total fixed charges 95,841 72,573
---------- ----------
Income before fixed charges (excluding
interest on deposits) $258,850 $213,402
========== ==========
Total fixed charges $ 95,841 $ 72,573
Preferred stock dividends and
redemption premium 1,552 1,533
Tax effect of preferred stock
dividends 819 785
---------- ----------
Combined fixed charges and preferred
stock dividends $ 98,212 $ 74,891
========== ==========
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
Including interest on deposits 1.54x 1.51x
Excluding interest on deposits 2.64x 2.85x
</TABLE>
<TABLE>
Exhibit (12)(b)
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
Ratio of Earnings to Fixed Charges
(in Thousands)
(Unaudited)
<CAPTION>
Six Months Ended
June 30
-----------------------
1999 1998
----------- ----------
<S> <C> <C>
Pretax income $ 163,009 $ 140,829
Add fixed charges:
Interest on deposits 198,766 198,134
Interest on borrowings 92,643 69,695
Portion of rental expense
representing interest expense 3,198 2,878
---------- ----------
Total fixed charges 294,607 270,707
---------- ----------
Income before fixed charges $ 457,616 $ 411,536
========== ==========
Pretax income $ 163,009 $ 140,829
Add fixed charges (excluding
interest on deposits):
Interest on borrowings 92,643 69,695
Portion of rental expense
representing interest expense 3,198 2,878
---------- ----------
Total fixed charges 95,841 72,573
---------- ----------
Income before fixed charges
(excluding interest on deposits) $ 258,850 $ 213,402
========== ==========
RATIO OF EARNINGS TO FIXED CHARGES:
Including interest on deposits 1.55x 1.52x
Excluding interest on deposits 2.70x 2.94x
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF INCOME AND RELATED SUPPLEMENTAL
SCHEDULES OF COMPASS BANCSHARES, INC. AS OF AND FOR THE PERIOD ENDED JUNE 30,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
AND RELATED SUPPLEMENTAL SCHEDULES.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 648,178
<INT-BEARING-DEPOSITS> 595
<FED-FUNDS-SOLD> 45,140
<TRADING-ASSETS> 76,466
<INVESTMENTS-HELD-FOR-SALE> 4,114,922
<INVESTMENTS-CARRYING> 1,619,186
<INVESTMENTS-MARKET> 1,588,780
<LOANS> 10,465,843
<ALLOWANCE> 139,728
<TOTAL-ASSETS> 17,731,328
<DEPOSITS> 12,610,602
<SHORT-TERM> 1,524,865
<LIABILITIES-OTHER> 77,877
<LONG-TERM> 2,338,890
0
11,500
<COMMON> 227,175
<OTHER-SE> 940,419
<TOTAL-LIABILITIES-AND-EQUITY> 17,731,328
<INTEREST-LOAN> 411,105
<INTEREST-INVEST> 189,418
<INTEREST-OTHER> 3,810
<INTEREST-TOTAL> 604,333
<INTEREST-DEPOSIT> 198,766
<INTEREST-EXPENSE> 291,409
<INTEREST-INCOME-NET> 312,924
<LOAN-LOSSES> 14,824
<SECURITIES-GAINS> 2,098
<EXPENSE-OTHER> 250,655
<INCOME-PRETAX> 163,009
<INCOME-PRE-EXTRAORDINARY> 106,695
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 106,695
<EPS-BASIC> 0.93
<EPS-DILUTED> 0.92
<YIELD-ACTUAL> 3.99
<LOANS-NON> 55,371
<LOANS-PAST> 10,634
<LOANS-TROUBLED> 518
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 136,677
<CHARGE-OFFS> 18,145
<RECOVERIES> 5,076
<ALLOWANCE-CLOSE> 139,728
<ALLOWANCE-DOMESTIC> 139,728
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
